Jermaine Beckford scored his first goal for Leicester as the Foxes moved to within a point of the Championship play-off positions.
His strike partner David Nugent fired City ahead after 19 minutes before Beckford headed in his first goal since his deadline-day switch from Everton.
Jonathan Hogg went closest for Watford with a late volley from the edge of the area, which was pushed over the bar.
Sean Dyche's side have now lost their last three games without scoring.
Leicester started brightly and thought they were ahead in the ninth minute when Beckford's volley looped over goalkeeper Scott Loach but the officials ruled the ball had gone out before Sol Bamba had dug out a cross.
Former England defender Paul Konchesky set up the opening goal with a pass into Nugent, who sent a left-foot shot across Loach and into the bottom corner for his fourth goal of the season.
A fingertip save from Loach on the half-hour denied Nugent a second before Leicester deservedly extended their lead in the 36th minute.
Yuki Abe's cross was flicked home by the head of Beckford for his first goal in six games for Sven-Goran Eriksson's side.
Adrian Mariappa went close for the visitors early in the second half with a looping header from 15 yards that landed on the roof of the net.
Eriksson's side were less of a threat after the break and did not really threaten again until the last 10 minutes.
Substitute Darius Vassell, on for Beckford, had a curling effort from inside the area deflected wide and Bamba headed over from the resulting corner.
Andy King then had Loach scrambling across his goal with a curler from 18 yards, but again the ball went just wide.
Hogg worked Kasper Schmeichel for the first time in the 86th minute but the Leicester keeper did well to tip his shot over the bar.