Craig Bellamy's fourth league goal in as many games helped Liverpool to a fifth successive Premiership win.
Ben Foster made a series of saves to deny Liverpool in the first-half, though Watford had the best chance when Al Bangura volleyed over the bar.
But early in the second half Bellamy sidefooted the ball home after good work by Dirk Kuyt and Steven Gerrard.
Late on subsitute Peter Crouch crashed a shot against the post, before Xabi Alonso's curling shot sealed the win.
Liverpool might have scored more than two goals had it not been for Foster's heroics in the Watford goal.
On loan from Manchester United, Foster made a series of saves to keep the scores level in the first half and then made two superb stops to deny Bellamy and Carragher after the break.
Foster distinguished himself rather better than his more experienced counterpart Jose Reina.
The Liverpool keeper survived a couple of jittery moments as Watford frustrated Rafael Benitez's side in that muted opening half.
The Spanish keeper fluffed an ambitious attempted volley clearance from Gerrard's back-pass and then more alarmingly flapped at Ashley Young's cross.
On that second occasion the ball landed at the feet of Bangura, but he was unable to keep his volley down.
Foster looked altogether more assured, saving Alonso's swept shot and and then Kuyt's driven effort.
The Watford keeper also reacted quickly to save Bellamy's deflected cross, pushing the ball away after it had hit Dan Shittu.
Having done so much to frustrate Liverpool in the opening half, Watford went behind almost immediately after the restart.
Gerrard and Kuyt combined in a neat exchange before the England international played the ball to the unmarked Bellamy.
The Welsh international switched the ball to his right foot before planting it into the corner of the net.
To their credit Watford refused to buckle and Reina did well to tip over Young's flicked header.
From the resulting corner the Liverpool keeper survived another scare when Anthony McNamee's deflected shot went narrowly wide.
With 20 minutes left Mark Gonzalez replaced Jermaine Pennant, with the substitute making an immediate impact.
Gonzalez threaded a pass through to Bellamy, whose shot was saved by Foster, with the Chilean winger unable to steer home a header from the rebound.
Soon afterwards Foster made his best save as he pushed away a powerful Carragher volley following a Liverpool corner.
Crouch was unlucky when he crashed a shot against the post after some neat footwork, but Alonso gave the Anfield crowd a rousing finale with a superb shot that arced its way past Foster.
Liverpool manager Rafael Benitez:
"His partnership with Dirk Kuyt is starting to get better and he is scoring goals. Strikers take confidence from goal and that is what we are now seeing from Craig.
"We deserved to win, but it was a difficult game. We desperately needed that second goal to clinch the points, and it took a long time to get it.
"Watford were physical, and we expected that. And they were dangerous from set pieces, always a problem."
Watford boss Adrian Boothroyd:
"We are resilient and we could have come away from the game with something.
"It would be easy to say this was a killer result. But it's only a killer if you allow it to knock you down."
Liverpool: Reina, Finnan, Carragher, Agger, Riise, Pennant (Gonzalez 65), Gerrard, Alonso, Luis Garcia, Bellamy (Crouch 82), Kuyt (Aurelio 90).
Subs Not Used: Dudek, Hyypia.
Goals: Bellamy 47, Alonso 88.
Watford: Foster, Mariappa, DeMerit, Shittu, Stewart, Smith, Mahon, Bouazza, Bangura (Francis 82), Young, Henderson (McNamee 60).
Subs Not Used: Lee, Doyley, Priskin.
Att: 42,807
Ref: P Dowd (Staffordshire).