Defeat for Rafael Benitez's already-safe Magpies means that Newcastle have now lost three league games on the bounce following an impressive run that had previously seen United win four straight top-flight games.
The Hornets came flying out of the traps and went ahead inside just two minutes when Paul Dummett should have cleared more effectively, instead giving possession to Abdoulaye Doucoure, who kept his cool to pick out Pereyra and he made no mistake with an adroit finish beyond Martin Dubravka.
The Magpies offered very little resistance in the opening minutes as Pereyra raced in behind the defence, only to be thwarted by an onrushing Dubravka, who saved well under pressure to spare the visitors' blushes.
Gray and Troy Deeney appeared effective up top together for the home side, the latter soon feeding his partner after an enterprising pass from Doucoure, although Gray could only fire straight at the Newcastle stopper.
The miss was not to matter too much, however, as Deeney soon combined with Pereyra, allowing the Argentine to dupe Javier Manquillo and send a ball to the back post, where Gray was waiting to rise highest and power a header home to make it 2-0.
The Hornets should have killed the game off before the interval too as Gray found himself upended inside the area having been on the end of a mistimed sliding challenge from Dummett, which allowed Deeney to step up for a potentially match-sealing penalty.
The forward appeared a little too languid in his approach, though, giving Dubravka the chance to guess correct and keep out the spot kick with a diving save, before rushing to his feet to again thwart Deeney from the rebound.
The Magpies were improved after the break and they set Watford nerves jangling with their first shot on target, as Ayoze Perez drifted free of his marker to produce a deft finish at the back post to make it 2-1 having been picked out by Manquillo on the right.
The goal spurred Newcastle into life and they might have drawn level when Watford substitute Adrian Mariappa almost turned a header into his own net, his mishap requiring Orestis Karnezis to save down low.
The visitors almost grabbed an equaliser with just over 15 minutes to play, but Perez saw his flick from a Jonjo Shelvey corner come back off the near post as Watford found themselves struggling to hang on to the lead.
Benitez continued to manipulate his tactics and formation in hope of a late leveller, but somehow the Hornets were able to hold out and claim three crucial points that will leave them playing Premier League football for another season at least.
WATFORD (4-4-2): Karnezis; Janmaat, Cathcart, Kabasele, Holebas; Capoue, Doucoure, Hughes, Pereyra (Deulofeu 56'); Gray (Richarlison 80'), Deeney (Mariappa 62')
NEWCASTLE UNITED (4-4-2): Dubravka; Manquillo (Yedlin 67'), Lascelles, Lejeune, Dummett; Shelvey, Diame (Merino 84'), Murphy (Ritchie 53'), Kenedy; Perez, Gayle