The in-form striker grabbed the only goal from the penalty spot early in the second half for high-flying Brighton.
It meant Seagulls boss Gus Poyet was able to put one over on his old Chelsea team-mate Gianfranco Zola as they met as managers for the first time.
Zola's Hornets, still a work in progress after their summer overhaul, did have their chances with Fernando Forestieri coming closest when his shot clipped the crossbar, while they could have had a couple of penalties of their own.
But they could not prevent Brighton, who have designs on a promotion tilt this term, collecting their fourth straight win.
Watford made the brighter start, though, with Mark Yeates firing wide from 25 yards and Almen Abdi also off target from just inside the area.
But Brighton grew stronger the longer the first half went on and they could have taken a 23rd-minute lead when Will Buckley sent in a dangerous cross, only for Mackail-Smith to prod his effort wide.
Buckley was combining well with Wayne Bridge down Watford's right and when the winger skipped past Marco Cassetti his pull-back fell to Dean Hammond, but Hornets goalkeeper Manuel Almunia was out quickly to block the shot.
Moments later Bridge's backheel sent Buckley to the byline again and this time Hammond volleyed the cross over the crossbar.
A superb ball from Bridge then put Mackail-Smith in behind the home defence but the striker's control let him down and the chance disappeared, before Gary Dicker shot straight at Almunia before half-time.
The deadlock was broken five minutes into the second half, with Watford architects of their own downfall.
Piccoli Neuton gave the ball away on the edge of the area and as Mackail-Smith nipped into the box he was brought down by Daniel Pudil.
Referee Darren Drysdale pointed to the spot and Mackail-Smith, a boyhood Watford fan, drilled the spot-kick straight down the middle to beat Almunia.
Watford almost grabbed a leveller when Pudil's cross was met by Argentinian forward Forestieri, whose shot hit the top of Albion's crossbar.
Teenage substitute Nathaniel Chalobah then whipped in an inviting cross but Pudil could not keep his header on target, while Watford had penalty shouts of their own when Jonathan Hogg and then Chalobah tumbled in the area.
But Brighton could have won by more with Mackail-Smith firing just too high and Almunia saving from Hammond.
