Tony Mowbray's side needed to beat the Hornets and hope sixth-placed Cardiff lost to Crystal Palace at Selhurst Park in order to finish in the top six.
Initially, Boro had hope of leapfrogging Cardiff when Wilfried Zaha put Palace ahead, but they themselves could never get in front against Watford and instead heard news of Cardiff coming from behind to claim a 2-1 victory.
Chris Iwelumo's first strike at Vicarage Road and Troy Deeney's 12th goal of the campaign helped Watford, tipped by many to be relegation candidates, end an encouraging first season under manager Sean Dyche in 11th place.
Top-scorer Marvin Emnes had looked to have sealed a point for Boro, who finished the season five points behind the Bluebirds in seventh position.
Boro showed signs of nerves early on as a short backpass almost provided Iwelumo with a clear sight on goal while, at the other end, Nicky Bailey and Faris Haroun fired wide from distance.
As news of a Palace opener at Selhurst Park filtered through the away end, Boro were inspired and started to create opportunities.
Goalkeeper Scott Loach, replacing Tomasz Kuszczak in the only Hornets change, was called into action twice in the first 16 minutes to deny Joe Bennett and Emnes.
Former England Under-21 international Loach was determined to take his chance, pushing a 12-yard Barry Robson effort round the post on the half hour mark.
Watford were limited to long-range chances, with Jonathan Hogg and Carl Dickinson failing to hit the target.
Loach continued to frustrate the visitors with an excellent save to prevent Haroun from converting Justin Hoyte's cross from six yards.
But the hosts looked dangerous on the break and nearly punished Boro for their wastefulness in front of goal, Iwelumo almost bundling in the opener from close range.
After the interval, Boro pressed for that all-important opening goal, with a last-ditch Dickinson clearance denying Lukas Jutkiewicz .
Cardiff's comeback from a goal down seemed to flatten Boro, with Iwelumo testing Jason Steele from 20 yards.
Iwelumo went one better 21 minutes from time when the former Burnley striker flicked home a Deeney cross to give Watford the lead.
Robson tried to draw Boro level but once again found Loach in inspired form, while Iwelumo shot over in an attempt to double his tally.
Deeney shot wide for the home side before Boro levelled, Emnes, with his 18th goal of the season, finding the top corner from 12 yards.
But three minutes later, Deeney converted Craig Forsyth's cross to seal Watford's triumph.