A loss for Watford looked on the cards when the home side were given a controversial penalty, stroked home by top scorer David McGoldrick in the 73rd minute.
But the lead lasted just eight minutes after Deeney slid home from Marco Cassetti's dangerous cross.
In truth, a draw was a fair result in a largely dismal affair.
Neither side gave an inch in a cagey opening. The first shot at either goal came in the 22nd minute with Watford edging early proceedings.
And they came closest to scoring in the 25th minute when Diego Fabbrini found space in the area and cannoned a shot against the near post from an acute angle.
Ipswich looked to fight back and the visitors were indebted to the agility of the recalled Manuel Almunia after McGoldrick exchanged passes with Aaron Cresswell but saw his curling 25-yard effort tipped over.
Five minutes before the interval, an intricate free-kick - controversially given - almost brought Ipswich the lead when Cole Skuse disguised the set-piece to McGoldrick whose first time shot was just too high.
Ipswich again went close when Frank Nouble bundled his way into the box but saw his near-post shot turned round by Almunia.
As in the first half, the second 45 minutes took a while to get going. It was Watford who almost made the breakthrough when the impressive Fabbrini dissected the home defence and Sean Murray's goalbound shot was smartly turned around by Dean Gerken.
At the other end, Ipswich were being restricted to shots from distance with neither Luke Hyam nor McGoldrick threatening the Hornets' goal.
Just as the game appeared to be drifting into a lifeless, turgid goalless draw, Ipswich were given an early Christmas present.
Nouble's weak cross deflected off the arm of Gabriele Angella and referee Graham Scott had no hesitation in pointing to the spot.
After furious Watford protests finally died down, Town top scorer McGoldrick stroked home his ninth of the season from the penalty spot.
Clearly incensed, Watford were nearly given their own gift when a defensive mix-up almost allowed Cassetti a tap-in but Gerken recovered to gather.
But with nine minutes left, they were level when sub Cristian Battocchio slid a teasing cross into the six-yard area and Deeney beat Smith to slide the ball home.
Town thought they had won the match in the 87th minute when McGoldrick found some rare space in the Watford box but saw his shot parried by Almunia.
Luke Hyam leapt onto the rebound but his header came back off the crossbar.