Pep Guardiola's charges were quick out of the starting blocks and mustered their first chance on target just nine minutes in as Fernandinho tested Heurelho Gomes just after Sterling miskicked from 12 yards out.
Watford were mostly camped in their own half for the opening periods, though they came close to taking the lead themselves 26 minutes in, only for Richarlison to head wide from Jose Holebas's free kick from deep.
The hosts' resistance gave way just a minute later, however, as a pinpoint free kick delivery from the impressive Kevin De Bruyne was nodded home by Aguero.
City's goal opened the proverbial floodgates as the Argentine striker scored on 31 minutes, when David Silva's cutback to the six-yard box was tapped into the net from two yards out.
Jesus then got onto the scoresheet himself in controversial circumstances in the 38th minute as he was just ahead of play when Aguero slid a pass through to the Brazilian, who subsequently dragged his finish into the bottom corner.
Marco Silva's charges were more organised and incisive after the break but were soon picked apart once again when Otamendi headed in Silva's corner, before Aguero completed his hat-trick when he poked home after weaving through the Watford defence.
Sterling completed the rout from the penalty spot with just one minute left after he was brought down by Christian Kabasele, Guardiola opting for the England winger to have a go from 12 yards and seeing the effort ferociously driven into the top corner of the Hornets' net.