The 33-year-old journeyman striker caught Leeds cold when sliding the ball home in the fifth minute for only his second goal in 33 appearances for his latest club and side-footed a killer second in the closing stages.
Leeds, humiliated in a 7-3 defeat to Nottingham Forest in their last match at Elland Road, huffed and puffed in a bid to salvage a point, but could not find a way past Watford goalkeeper Tomasz Kuszczak and now find themselves six points adrift of the play-offs with as many games tom play.
Kuszczak pulled off two super saves early in the second half to deny Alex Bruce and Robert Snodgrass to leave Neil Warnock without a home win as Leeds manager.
Warnock made just one change, recalling Paul Connolly at right-back, while midfielder Mark Yeates and Iwelumo returned for Watford.
Iwelumo made a flying start by opening the scoring in the fifth minute. Strike partner Troy Deeney burst forward into the penalty area and when he slipped the ball inside, Iwelumo was in support and placed the ball beyond Leeds goalkeeper Andy Lonergan into the bottom corner.
Leeds responded to the early setback in positive fashion, with winger Snodgrass's shot blocked and defender Bruce heading the subsequent corner over the crossbar.
But only a fine save from Lonergan to deny Deeney in the 20th minute prevented Watford from doubling their lead.
Watford goalkeeper Kuszczak pulled off an equally impressive save to turn away Snodgrass's shot from inside the area, but Lonergan was forced into action again just before the interval, keeping out Deeney's goalbound shot at full stretch.
Leeds midfielder Danny Webber replaced the injured Aidy White at half-time to face his former club as the home side went in search of an equaliser.
But Warnock's side could not find a way past Kuszczak, who first thwarted Bruce's header and then an angled drive from Snodgrass in quick succession.
Snodgrass pulled another effort wide soon after and Warnock sent on striker Ramon Nunez for midfielder Adam Clayton in the 68th minute.
Nunez curled an angled shot from 20 yards just wide with his first touch two minutes after coming on and Bruce planted another header over the crossbar in the 72nd minute as Leeds maintained the pressure.
Central defender Tom Lees crashed a thumping 20-yard shot just wide with 10 minutes remaining, but chances dried up for the home side and after Deeney's 82nd-minute shot was brilliantly saved by Lonergan, Iwelumo popped up again inside the area to side-foot home from six yards following another assist from his strike partner.
Leeds defender Paul Connolly was sent off for his second yellow card offence in the third minute of time added on.