With neither Middlesbrough nor Crystal Palace in action, the Hornets claimed all three points to move them into fourth place, while Forest's play-off aspirations suffered a blow.
Gianfranco Zola's men have scored in every league game since November 6 and it was no surprise that they broke the deadlock when Vydra swept home.
The Czech, who has piqued the interests of some Premier League clubs with his sparkling form, then turned provider for strike partner Troy Deeney to double the advantage.
The hosts may have staged a comeback had Dexter Blackstock not missed the target from point-blank range on the stroke of the interval.
Watford did not have to wait long for the opening goal as Vydra grabbed his 17th of the season after 20 minutes.
An incisive pass through by Nathaniel Chalobah was picked up by Deeney and he steered it across the face of goal for Vydra to apply the finish.
Karl Darlow, promoted to number one under Alex McLeish, was hapless for Vydra's strike but he made a fine stop from Almen Abdi at a corner before Joel Ekstrand's effort was hacked off the line.
The hosts were offering little attacking threat and when they did push forward the Hornets punished them with a blistering counter-attack which led to the second goal 11 minutes before the break.
Manuel Almunia punched out a set-piece and Cristian Battocchio and Chalobah brought the ball out before Deeney released Vydra. The striker neglected to shoot himself, instead feeding Deeney to rifle in a second.
Forest finally came to life and Simon Cox skewed his chance just wide before Blackstock, who signed a new contract at the City Ground on Thursday night, somehow fluffed his lines just before the break.
Vydra dispatched a sublime second as he made it 10 goals in his last five Championship starts 18 minutes from time.
Abdi picked out the forward with a through ball and Vydra kept his composure with Darlow coming out to meet him, lifting the ball over the stopper's head and into the net.
The hosts then introduced new signing Darius Henderson but he could not galvanise his team.