Latics lost out to a cruel 82nd minute goal as Watford substitute Cristian Battocchio sealed three points for the hosts after Owen Coyle's side had a first half goal ruled out and a controversial second half penalty claim turned down.
Coyle made eight changes from his side that faced Manchester City in the Capital One Cup midweek, with Marc-Antoine Fortune the most notable incoming.
It was a bright start from Latics to a game that promised action in the lead up.
James McArthur produced the first effort of the game when Watford failed to clear after Jordi Gomez and Ben Watson worked the ball forwards, but the Scottish internationals shot couldn't trouble Manuel Almunia as the ball flashed wide.
Watford showed signs of their talked-up attacking threat, with Lewis McGugan looking to feed Troy Deeney through Latics' defence on a number of occasions, but Leon Barnett and James Perch combined well to cut out the threat.
It was an absorbing encounter in the first half as Latics controlled possession at the back, worked the ball forwards and at times found the killer pass.
Latics thought they'd gone ahead on 18 minutes when James McClean raced away down the left wing and fired in a low cross.
Almunia spilled the ball into the path of Nick Powell who emphatically finished, only for the linesman on the nearside waved his flag, judging McClean to be offside when he received the initial pass.
Latics continued to impress as the half went on, with a Gomez back heel to Powell on the edge of the area only just being cut out as the forward looked ready to shoot.
Unfortunately for Latics Fortune was forced off after 24 minutes through injury, but the incoming Callum McManaman proved to be a real threat throughout.
Prodding and poking at the Watford defence continued, but the chances weren't falling until the second half began.
Low crosses into the area caused the home sides a host of problems as James McClean and McManaman continued to run at their full backs.
On 55 minutes Ryan Shotton got in on the act as he cut a cross back for McArthur inside the area, but he couldn't work his feet quickly enough as a tame shot from close range was blocked.
Continual pressure had Watford backed into a corner, with goalkeeper Manuel Almunia saving them twice in one move as Powell shifted the ball between his feet in the area, forcing a parry from the Spanish goalkeeper which was followed up from the edge of the area by McClean through bodies and saved again.
Then came the controversy of the game as Watford had seemingly dispelled some intense Latics pressure, Lloyd Doyley was slow to clear and with a heavy touch the ball opened up inside his own box.
Powell came in from behind Doyley, taking the ball away with his toe and taking a boot from Doyley for his troubles, only for referee Andrew Madley to wave play-on as Latics' players were left incensed, desperately claiming for the spot kick.
A minute before Watford's heartbreaking winning goal, McManaman once again bamboozled the full back and fizzed in a superb low cross, but nobody could follow it in at the back post.
Watford did have someone to follow in at the other end though, as second half substitute Cristian Battocchio lurked on the edge of the area to loop in the only goal of the game as the ball popped up out of defence.
It was a cruel blow for Latics in a game which for the most saw them force Watford onto the ropes.
Four minutes of added time couldn't offer up an equaliser, but Scott Carson's superb save from a late Diego Fabbrini effort prevented a second for the Hornets.