Goals from Tommy Smith and Nathan Ellington sealed the win and sent the Hornets one point clear at the top, after West Bromwich Albion slipped up at Barnsley.
The Baggies were beaten 2-1 away at Oakwell, Daniel Nardiello's 30th minute strike sent The Tykes on their way, and Jon Macken doubled the advantage 15 minutes later.
After a neat one-two with Kevin Phillips, James Morrison poked the ball home to give The Baggies hope, but Barnsley hung on for a precious three points.
Bristol City remain in third place after a 2-1 victory over Sheffield Wednesday.
New signing Dele Adebola opened the scoring for City after just seven minutes, and Bradley Orr sealed the win soon after the restart.
Wednesday pulled a goal back late into injury time thanks to Lee Bullen's spectacular effort.
Meanwhile at the other end of the table, both Scunthorpe and Colchester earned valuable draws, whilst Preston moved out of the relegation zone with a 1-0 win over Coventry.
Leicester City are hovering just above them after they were beaten at home by Plymouth.
Peter Halmosi grabbed the only goal of the game with 34 minutes gone.
Elsewhere, there was a six-goal thriller at Molineux - with Stoke coming out on top.
Rory Delap put Stoke ahead with just four minutes on the clock, but Rob Edwards grabbed an equalizer shortly before the break.
One minute after the restart, former Iron striker Andy Keogh fired Wolves ahead with a neat finish, but Liam Lawrence pulled the scoreline back to 2-2 with his tenth goal of the season.
The Potters then took the lead with 15 minutes remaining thanks to Leon Cort's toe-poke, and Ricardo Fuller finished the home side off with a run from the half-way line before slotting past Wayne Hennessey in the Wolves goal.
Meanwhile, at St Marys - Southampton were on the wrong side of a 3-2 scoreline as they entertained Queens Park Rangers.
Darren Powell put the home side ahead after only one minute, but Martin Rowlands pulled a goal back for Rangers with 38 minutes gone.
Patrick Agyemang then put the visitors in front with a low volley just before the break and sealed the win himself with a goal on the hour-mark.
Stern John pulled a late goal back for Southampton, but it could only act as a consolation.
Finally, Hull City were held to a draw at home to Blackpool. Paul Dickov put the visitors ahead with a 39th minute strike, and he doubled The Tangerine's advantage with a superb lob shortly after the break.
However, City fought back to earn a point. Caleb Folan netted his third goal in six games to give The Tigers hope, and Dean Windass was on hand to level the scores after slotting in from Frazier Campbell's cross.