Grabban held talks over a £1.1m move to Championship rivals Brighton on Friday but returned to Dean Court to pen a new three-and-a-half-year-deal.
Grabban equalised from the penalty spot to cancel out a header from Gabriele Angella, who was later sent off.
And it took a superb triple save from Manuel Almunia to ensure Watford did not go home empty-handed.
The Hornets started well and threatened on 11 minutes when they hit Bournemouth on the break.
Italy Under-21 international Cristian Battocchio turned defence into attack and swung a ball into the box that reached Lewis McGugan, but he scuffed his strike wide.
The Cherries responded two minutes later but Marc Pugh's 20-yard effort was deflected before being comfortably saved by Almunia.
Grabban then exchanged passes with Andrew Surman, who struggled to get the ball under control before it fell to Matt Ritchie. His first-time effort, though, was deflected over.
Watford's Battocchio was involved once more on 33 minutes and his thunderous 25-yard strike forced Cherries keeper Lee Camp to tip the ball around his post.
On 36 minutes Surman slipped through an onrushing Pugh but blazed over from Eddie Howe's side's best chance of the half.
Watford took the lead in stoppage time in the first-half when defender Angella sent a bullet header flying past Camp.
The full-back rose highest at the back post from a McGugan free-kick, sending the Hornets in the happier of two sides at half-time.
But Bournemouth found an equaliser on 63 minutes from 12 yards when the linesman flagged for a penalty.
Grabban fell under pressure from Fitz Hall and Joel Ekstrand but it was goalscorer Angella who was given a straight red card.
Grabban converted from the spot, sending Almunia the wrong way to notch his 12th goal of the campaign.
The Cherries could have doubled their lead through Surman on 66 minutes but he could not steer his curling effort on target.
Bournemouth had another opportunity when Eunan O'Kane slid through a ball for Pugh, who was then hauled down by Almunia resulting in a second penalty on 72 minutes.
But the Spanish keeper, who was also booked for the foul, made amends as he pushed away Grabban's penalty before also stopping Simon Francis' volley and O'Kane's low drive.
The home side could have grabbed a late winner in the 90th minute through Ritchie but somehow his effort hit Watford's Daniel Pudil, who was down injured.