The Iceland international converted two almost identical headers taking his season's tally to six.
He gave Watford the lead on 20 minutes when he met Neal Ardley's free-kick at the near post, and the pair combined seven minutes later for a second.
Desperate defending kept Forest in the frame and they cut the arrears when Andy Reid headed home Michael Dawson's cross on the stroke of half-time.
Forest boss Joe Kinnear refused to speak to the press after his side sunk deeper into the relegation zone.
But coach Des Walker said: "We're the only people who can turn this situation around.
"We're not defending set-pieces well at the moment and that's something
we need to look at.
"We play Rotherham on Wednesday and we've got to make sure we get a result
and get three points for ourselves - it's as simple as that."
Watford boss Ray Lewington singled out Neil Ardley and goalscorer Heidar Helguson's work in carving out the victory.
"Neil Ardley is the best crosser in free play at the moment," said Lewington.
"He's done it again for us with the quality of his delivery.
"It was a case of him picking out Heidar Helguson and his heading ability providing the finish.
"The one thing that disappointed me was that we didn't have more than two
goals to show for our work."
Nottm Forest: Gerrard, Louis-Jean, Dawson, Morgan, Rogers, Perch (Thompson 87), Evans, Jess (Commons 45), Reid, King, Johnson. Subs Not Used: Impey, Roche, Robertson.
Booked: Louis-Jean, Reid, Morgan.
Goals: Reid 45.
Watford: Lee, Doyley, Dyche, Demerit, Darlington, Chambers (Young 78), Mahon, Gunnarsson (Blizzard 70), Ardley, Helguson, Webber (Dyer 66). Subs Not Used: Chamberlain, Bouazza.
Booked: Chambers, Helguson.
Goals: Helguson 20, 27.
Ref: M Atkinson (W Yorkshire).