Match ends, Oxford United 1, Watford 1(3).
Watford knocked Oxford United out of the Carabao Cup on penalties after scoring late to force the shootout.
Daniel Bachmann was the hero as he saved all three of Oxford's efforts, Stipe Perica scoring the winning kick.
Rob Hall's 20-yard strike after good work from Joel Cooper gave League One Oxford the lead and they were seconds away from seeing out the win.
But Ken Sema sent the game to penalties when he scored into an empty net after receiving Joao Pedro's scuffed shot.
Bachmann - who was also brilliant during the 90 minutes - kept out spot-kicks from Anthony Forde, Marcus McGuane and Hall as the Championship side wrapped up the shootout 3-0.
Watford debutant Perica scored the winning kick. The Croat had several chances in the game and was denied by Jack Stevens three times - as well as crashing a header off the post.
The U's, who reached the quarter-final last year, will wonder how they lost. Bachmann brilliantly kept out Cameron Brannagan's first-half effort - with Elliott Moore hitting the post from the corner.
Sam Long and Derick Osei Yaw also forced good saves from Bachmann. Even after Sema's equaliser, the keeper was needed to keep out Hall's injury-time header.
Watford - who finished with 10 men because of a Marc Navarro injury - will visit Newport in the third round next week.
Watford head coach Vladimir Ivic: "It was amazing goalkeeping, not just the penalties - all game Daniel Bachmann was quality. He had a fantastic evening.
"We had a lot of new players out there and we knew it was not going to be easy.
"We were starting with a lot of new boys who were playing for the first team for the first time. And some had not played in a match for a number of months.
"I believe Oxford were better in the first 45 minutes, but in the second half we had good shape and we started to play, and some substitutions changed the momentum."
Oxford boss Karl Robinson: "We were excellent. I was very proud of the team.
"We had a lot of players who were in uncomfortable positions, and that's a Premier League budget we were up against.
"The one grumble is that there were three or four chances that we didn't take that we probably should have done.
"Being highly critical, we've got to put teams to bed when we are on top as we were."
- 2ClareSubstituted forMcGuaneat 65'minutes
- 15MousinhoSubstituted forLofthouseat 70'minutes
- 8BrannaganSubstituted forKellyat 66'minutes
- 29Osei Yaw
- 32NavarroBooked at 72minsSubstituted forat 72'minutes
- 45AgyakwaSubstituted forKabaseleat 45'minutes
- 14ChalobahSubstituted forSemaat 45'minutes
- 34SinclairSubstituted forJoão Pedroat 60'minutes
- 10João Pedro
- Leigh Doughty
- Shots on Target
Penalty Shootout ends, Oxford United 1, Watford 1(3).
Goal! Oxford United 1, Watford 1(3). Stipe Perica (Watford) converts the penalty with a right footed shot to the bottom right corner.
Penalty saved! Robert Hall (Oxford United) fails to capitalise on this great opportunity, left footed shot saved in the bottom right corner.
Goal! Oxford United 1, Watford 1(2). Domingos Quina (Watford) converts the penalty with a right footed shot to the bottom left corner.
Penalty saved! Marcus McGuane (Oxford United) fails to capitalise on this great opportunity, right footed shot saved in the bottom left corner.
Goal! Oxford United 1, Watford 1(1). Ken Sema (Watford) converts the penalty with a left footed shot to the bottom left corner.
Penalty saved! Anthony Forde (Oxford United) fails to capitalise on this great opportunity, right footed shot saved in the bottom left corner.
Penalty Shootout begins Oxford United 1, Watford 1.
Second Half ends, Oxford United 1, Watford 1.
Attempt saved. Elliott Moore (Oxford United) header from the centre of the box is saved in the bottom left corner. Assisted by Liam Kelly with a cross.
Corner, Oxford United. Conceded by Toby Stevenson.
Attempt missed. Sam Long (Oxford United) header from the centre of the box misses to the left. Assisted by Liam Kelly with a cross following a corner.
Corner, Oxford United. Conceded by Daniel Bachmann.
Attempt saved. Robert Hall (Oxford United) header from the centre of the box is saved in the bottom right corner. Assisted by Kyran Lofthouse with a cross.
Attempt missed. Daniel Agyei (Oxford United) left footed shot from outside the box is high and wide to the left. Assisted by Robert Hall.
Goal! Oxford United 1, Watford 1. Ken Sema (Watford) right footed shot from the centre of the box to the bottom left corner. Assisted by João Pedro.
Attempt missed. João Pedro (Watford) right footed shot from the centre of the box misses to the left. Assisted by Stipe Perica with a headed pass.
Joel Cooper (Oxford United) wins a free kick on the left wing.
Foul by Domingos Quina (Watford).