Andy Reid had given Forest the perfect start after just five minutes when his powerful strike found the top corner after Jamie Mackie's lay-off following a loose ball from Marco Cassetti.
But McGugan, who joined the Hornets from Billy Davies' side this summer, pulled things level with a stunning curling free-kick in a fiercely competitive clash.
If anyone was going to be the first player to score against Forest this season then McGugan was that man. He hit 44 goals - many of them spectacular - during seven years in Nottingham before his switch to Vicarage Road.
Forest had gone ahead after only six minutes when Watford's renowned passing game proved their undoing as Marco Cassetti's extravagant crossfield ball was intercepted by Reid.
The Irishman still had plenty to do, first slipping the ball to Jamie Mackie who cut inside before nudging it back to Reid, whose trusty left foot arrowed a fierce drive past Manuel Almunia and into the top corner from 15 yards.
Watford spent the majority of the rest of the first half camped in the Forest half but the division's top scorers struggled to make inroads against the country's meanest defence.
And when the hosts did muster the odd shot on goal, Forest keeper Karl Darlow saved comfortably from both Diego Fabbrini and McGugan while Almen Abdi fired just wide.
Having soaked up the pressure Forest came agonisingly close to doubling their lead just before half-time when Reid's clever pass put Henri Lansbury in behind the Watford defence.
The ex-Hornets midfielder's shot flew across Almunia and crashed against the foot of the far post, with the rebound just eluding Mackie.
Watford immediately countered and Fabbrini's cross was met by the head of Troy Deeney, but the striker planted his effort wide.
Forest went on the attack at the start of the second half but Radoslaw Majewski and Greg Halford shot too close to Almunia.
And having survived those scares, in the 54th minute Watford went down the other end and finally breached Forest's backline.
Fabbrini was fouled by Adlene Guedioura 25 yards out and McGugan stepped up to bend his free-kick round the wall and into the top corner.
The midfielder kept his celebrations to a minimum but moments later he was at it again, playing a neat one-two before curling a first-time shot which Darlow kept out at full stretch.
Both sides had chances to win it with Almunia saving well from Mackie and Darlow denying both Sean Murray and Ikechi Anya.
A point was enough to send Forest back to the summit but they almost stole all three at the death when sub Ishmael Miller broke clear only to curl his effort against the post.