Bobby Hassell's header eased Barnsley's Championship relegation fears and meant Watford missed the chance to move into the automatic promotion places.
Hassell met a Jacob Mellis cross to net his first league goal in more than two years and take the Tykes two places and two points clear of the bottom three.
Watford could have capitalised on Hull's loss to in-form Nottingham Forest and climbed up to second.
But they lacked their normal attacking flair and rhythm and created little.
The Hornets - the Championship's highest scorers - had the better of the first half hour and home goalkeeper Luke Steele had to tip away Jonathan Hogg's header while Matej Vydra blasted a 20-yard shot over the bar.
Barnsley had their first real effort on goal on 33 minutes when Jason Scotland forced a good save from Jonathan Bond.
And two minutes later, the Tykes went ahead when Mellis found space on the left flank and his cross was headed into the bottom left-hand corner by Hassell.
Chris O'Grady almost made it 2-0 at the start of the second half but Bond saved at his near post.
Watford pressed late on but struggled to still struggled to create clear chances.
Vydra's volley forced a good stop from Steele, who also confidently dealt with a couple of late corners to ensure the home side's second win a week following the victory over Brighton on Tuesday.
Barnsley manager David Flitcroft:
"I'm completely buzzing, we set out a game plan and it really worked.
"There's been a lot said about Watford and what they've tried to do and how they've done things. I think it's brilliant what they've done; I love creativity, I love the way that they've taken advantage of a situation.
"You've got to accept you're playing Watford, you're playing some top, top players and you've got to deal with them; we dealt with them.
"At the start of the season we got overrun by them and today we've got up close and personal. We've got in and around what they do, we've put them under real pressure and we've returned with three points and victorious, and it's an honour to manage this football team at this point.
"I don't know many times Watford have not scored (this season), and I'm going to look that up when I get back to the office. We've kept a clean sheet against Watford, this can't be underestimated; the size of this performance, the level, the hunger, the desire that I spoke about before the game, it was just evident."
Watford manager Gianfranco Zola:
"I'm disappointed for the result, I'm disappointed for the performance and that's it.
"But it ends there because sometimes you have to admit, when the opposition fights and plays the way they played, sometimes the better quality doesn't prevail - especially in the Championship when you have teams fighting for their lives, like Barnsley, and they make it difficult for you to play and you cannot overcome that.
"I think my players will learn a lot from today. For many of them, they didn't even know a game like this.
"It is the first time we have faced a team that has played and pressed us so much throughout the game. And as I said, many of them with learn. In my team I have a lot of young players and games like this will teach them a lot."