Bakary Sako scored a dramatic equaliser in the third minute of stoppage time to earn struggling Wolves a crucial point against Watford at Molineux.
The Hornets looked set to move to within five points of Championship leaders Cardiff City after Almen Abdi scored from a 22-yard free-kick.
But Watford substitute Fernando Forestieri twice blazed over late on.
And Sako's right-foot strike earned Wolves only their fifth point in Dean Saunders' nine games as Wolves boss.
Second-placed Watford have now lost just just three times in 21 league games. But, with third-placed Crystal Palace
at Derby County, Gianfranco Zola's Hornets are now only two points ahead of the Eagles in the race for automatic promotion.
Wolves in the Championship under Dean Saunders
11 Jan: H v Blackburn 1-1
19 Jan: A v Sheff Wed 0-0
26 Jan H v Blackpool 1-2
31 Jan: A v Leicester 1-2
9 Feb: H v Leeds 2-2
16 Feb: A v Derby 0-0
19 Feb: A v Barnsley 1-2
24 Feb: H v Cardiff 1-2
1 Mar: H v Watford 1-1
Wolves, still without a win since Saunders
took charge in January,
remain in the bottom three, but move to within a point of safety ahead of trips to Millwall and Nottingham Forest before the now seemingly crucial home clash with fellow strugglers Bristol City on 16 March.
Saunders' team could easily have been in front on 19 minutes, only to be denied by a double save from Watford keeper Jonathan Bond, deputising for the injured Manuel Almunia.
Having blocked Kevin Doyle's left-foot shot, Bond pulled off an even better save to keep out Bjorn Sigurdarson's stinging right-foot volley from the rebound.
After that, Watford started to take command, going in front four minutes before the break.
Home skipper Karl Henry was pulled up for a challenge on Matej Vydra on the edge of the box and Abdi took full advantage, curling home a stunning right-foot free-kick.
The hosts threatened after the break when Sigurdarson cut in from the right to test Bond with a low right-foot shot, but Ikechi Anya should have put Watford 2-0 up when he screwed across the face of goal.
Substitute Jake Cassidy, on for the recalled Stephen Hunt, brought Wolves hope when he forced another save from Bond, only for on-loan defender Jack Robinson to shoot high and wide.
But, with midfielder David Davis replacing Henry, Wolves finished strongly, Sako's equaliser earning Saunders his most encouraging result since taking charge.
Wolves boss Dean Saunders told BBC Sport:
"Late goals normally come for teams at the top, who are full of confidence and have belief.
"We did enough to get at least a draw and this feels like a win. We have to really kick on from this and take this feeling into our next game at Millwall on Tuesday night.
"David Davis made a big difference. He must have made about 15 tackles when he came on.
"It's St David's Day today and I hoped we might get a bit of luck. But then I found out that their keeper Jonathan Bond is Welsh. And he had a good day too."
Watford boss Gianfranco Zola told BBC Sport:
"It is disappointing. I thought we were in control and I did not see it coming.
"We had opportunities to score a second goal and we did not take them.
"Fernando Forestieri is a good enough player to convert chances like that and we will have to see how he responds to this.
Full Time The referee signals the end of the game.
Shot from deep inside the area by Fernando Forestieri clears the crossbar.
Fernando Forestieri takes a shot. Jamie O'Hara gets a block in.
90:00 +2:13 Goal scored
Goal! - Bakary Sako - Wolves 1 - 1 Watford A goal is scored by Bakary Sako from the edge of the penalty area to the bottom right corner of the goal. Wolverhampton 1-1 Watford.
Jake Cassidy takes a shot. Save made by Jonathan Bond.
Outswinging corner taken by Bakary Sako from the left by-line, Roger Johnson takes a shot. Save made by Jonathan Bond.
Fernando Forestieri takes a shot. Blocked by Roger Johnson.
Jamie O'Hara takes a inswinging corner to the near post, clearance made by Daniel Pudil.
Substitution Daniel Pudil on for Ikechi Anya.
Substitution Jonathan Hogg comes on in place of Nathaniel Chalobah.
Fernando Forestieri produces a right-footed shot from inside the area that clears the crossbar.
Lloyd Doyley fouled by Jake Cassidy, the ref awards a free kick. Direct free kick taken by Jonathan Bond.
Substitution Matej Vydra leaves the field to be replaced by Fernando Forestieri.
Bjorn Sigurdarson takes a shot. Jonathan Bond makes a save. Close range shot by Jack Robinson goes wide of the left-hand post.
Jamie O'Hara restarts play with the free kick.
Booking Booking for Almen Abdi.
Free kick awarded for an unfair challenge on David Davis by Almen Abdi.
Corner taken left-footed by Bakary Sako, Roger Johnson takes a shot. Blocked by Lloyd Doyley. Inswinging corner taken by Jamie O'Hara from the right by-line, Roger Johnson has a headed effort at goal from close range which goes wide of the left-hand upright.
Substitution (Wolverhampton) makes a substitution, with David Davis coming on for Karl Henry.
Roger Johnson challenges Troy Deeney unfairly and gives away a free kick. Free kick taken by Matej Vydra.
Cristian Battocchio takes a shot. Save by Carl Ikeme. Corner taken by Matej Vydra from the left by-line, clearance by Roger Johnson.
Substitution Jake Cassidy is brought on as a substitute for Stephen Hunt.
Substitution Sylvan Ebanks-Blake comes on in place of Kevin Doyle.
Nathaniel Chalobah takes a shot. Blocked by Kaspars Gorkss.
The assistant referee signals for offside against Kevin Doyle. Direct free kick taken by Nyron Nosworthy.
Unfair challenge on Nathaniel Chalobah by Stephen Hunt results in a free kick. Free kick taken by Nathaniel Chalobah.
Unfair challenge on Almen Abdi by Jack Robinson results in a free kick. Nathaniel Chalobah takes the direct free kick.
Kaspars Gorkss gives away a free kick for an unfair challenge on Troy Deeney. Almen Abdi restarts play with the free kick.
Kevin Doyle takes a shot. Jonathan Bond makes a save.
Corner taken left-footed by Jamie O'Hara, Headed effort from deep inside the area by Kaspars Gorkss misses to the right of the goal.
Effort from outside the penalty box by Ikechi Anya goes wide right of the target.
Matej Vydra produces a right-footed shot from just outside the area that goes harmlessly over the target.
Free kick taken by Joel Ekstrand.
Booking Bjorn Sigurdarson receives a caution.
Bjorn Sigurdarson concedes a free kick for a foul on Joel Ekstrand.
Foul by Kevin Doyle on Joel Ekstrand, free kick awarded. Jonathan Bond takes the free kick.
The second half begins.
45:00 +1:10 Half time
Half Time The whistle is blown to end the first half.
Kaspars Gorkss is penalised for handball and concedes a free kick. Nathaniel Chalobah restarts play with the free kick.
40:56 Goal scored
Goal! - Almen Abdi - Wolves 0 - 1 Watford Almen Abdi grabs a goal direct from the free kick from outside the penalty box to the bottom left corner of the goal. Wolverhampton 0-1 Watford.
Unfair challenge on Matej Vydra by Karl Henry results in a free kick.
Kaspars Gorkss gives away a free kick for an unfair challenge on Troy Deeney. Nathaniel Chalobah has an effort direct from the free kick.
Marco Cassetti takes a shot. Carl Ikeme makes a save.
Lloyd Doyley takes a shot. Stephen Hunt gets a block in.
Stephen Hunt takes a shot. Blocked by Lloyd Doyley.
Outswinging corner taken right-footed by Almen Abdi from the right by-line, Roger Johnson makes a clearance. Corner taken by Almen Abdi, Kevin Doyle makes a clearance.
Troy Deeney takes a shot. Blocked by Kaspars Gorkss.
Cristian Battocchio concedes a free kick for a foul on Matt Doherty. Jamie O'Hara restarts play with the free kick.
Troy Deeney takes a shot. Carl Ikeme makes a save.
Inswinging corner taken right-footed by Almen Abdi played to the near post, clearance made by Kevin Doyle.
Corner taken short by Almen Abdi.
Kevin Doyle takes a shot. Save by Jonathan Bond. Shot from 12 yards by Bjorn Sigurdarson. Save made by Jonathan Bond.
Bakary Sako takes a shot. Nyron Nosworthy gets a block in.
Stephen Hunt gives away a free kick for an unfair challenge on Marco Cassetti. Almen Abdi takes the free kick.
Cristian Battocchio takes a shot. Roger Johnson gets a block in. Corner from the right by-line taken by Almen Abdi, clearance by Kaspars Gorkss.
Almen Abdi takes a shot. Matt Doherty makes a save.
Nyron Nosworthy fouled by Bjorn Sigurdarson, the ref awards a free kick. Direct free kick taken by Jonathan Bond.
Stephen Hunt challenges Matej Vydra unfairly and gives away a free kick. Nathaniel Chalobah restarts play with the free kick.
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