Back-to-back wins had eased Town clear of the drop zone ahead of Tuesday night's meeting with a Hornets side who had plummeted down the table having lost their last four matches and not scored in three.
But as usual, the form book offered little in the way of insight in this season's second tier as goals from Henri Lansbury and Will Hoskins got the hosts back to winning ways.
Keane admits his side's defeats keep him awake at night, and he will have nightmares about their first-half display.
On-loan Arsenal midfielder Lansbury had given the visitors a warning with barely 30 seconds on the clock when his deflected free-kick cannoned back off the crossbar.
But Lansbury had better luck seven minutes later when he took aim from virtually the same position, some 35 yards out on the left wing.
This time the England Under-21 international's inswinging free-kick was missed by everyone - including, crucially, Town goalkeeper Brian Murphy - and nestled in the back of the net.
An angry Keane had seen enough after just 20 minutes, hauling off midfielder Owen Garvan for Lee Martin.
The woodwork denied Watford again seconds later when Heidar Helguson met Lloyd Doyley's cross at the far post and planted his header against the upright.
Murphy then twice came to the visitors' rescue, keeping out a fierce Helguson volley and saving with his legs to deny Hoskins.
If Keane's demeanour on the touchline was anything to go by, the visiting dressing room would have been no place for the faint-hearted at the interval.
They improved markedly after the break and dragged themselves level in the 68th minute when Watford failed to deal with Grant Leadbitter's corner.
The loose ball eventually found its way to Jack Colback, and the on-loan Sunderland youngster lashed it back past home keeper Scott Loach.
Hoskins must have thought his chance to be a hero had passed him by when he miscued right in front of goal from John Eustace's clever pass.
But his moment finally arrived in the 76th minute when he latched onto a flick-on from substitute Danny Graham and rifled a superb low shot into the net from the edge of the area.
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