Darius Henderson scored a goal in each half to earn promotion hopefuls Watford their first win in five matches.
Henderson made light of the absence of suspended top scorer Marlon King by nodding in Chris Eagles' pinpoint cross after 32 minutes.
Ipswich improved after the break and equalised when Nicky Forster met Darren Currie's free-kick with a header.
But the hosts snatched the points 12 minutes from time thanks to another Henderson header.
Watford boss Adrian Boothroyd after his team staged a mock penalty shoot-out after match:
"We are a young team and we need to be as prepared as we can be for the play-offs.
"You cannot re-create a penalty shoot-out under match conditions, so we re-created it at Vicarage Road - and the fans were brilliant.
"We would have done it regardless of the result of this match."
Ipswich boss Joe Royle after Alan Lee failed to win a penalty:
"I will be writing to the relevant authorities to complain, but I'm wasting my breath.
"How can everyone in the ground see the penalty incident and yet not the linesman or referee?"
Watford: Foster, DeMerit, Mackay, Carlisle, Doyley, Eagles (Chambers 70), Mahon, Bangura, McNamee (Stewart 81), Young, Henderson.
Subs Not Used: Chamberlain, Mariappa, Robinson.
Goals: Henderson 33, 77.
Ipswich: Price, Richards, De Vos, McEveley, Naylor, Sito, Bowditch (Currie 45), Juan, Brekke-Skard (Haynes 45), Forster, Lee (Peters 88).
Subs Not Used: Supple, Wilnis.
Goals: Forster 57.
Ref: C Webster (Tyne & Wear).
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