Boro are now three games unbeaten but they got off to a bad start as Danny Graham, who started his career on Teesside, opened the scoring with Watford’s first strike at goal.
It looked ominous for the hosts as the Hornets were unbeaten in five matches and Middlesbrough have a shortage of fit strikers but McDonald hauled them level.
Taylor’s strike on the stroke of half-time, which was his first goal for Middlesbrough, proved decisive and helped his side move nine points clear of the drop zone.
A poor afternoon was compounded for Watford when Adrian Mariappa saw red for a second bookable offence and they slipped to ninth in the table following the defeat.
Leroy Lita picked up a hamstring problem in Boro’s goalless draw with Portsmouth so Marvin Emnes partnered McDonald in attack, while Jonathan Grounds and Julio Arca replaced Seb Hines and Richard Smallwood.
Watford manager Malky Mackay made just one change to the team that defeated Ipswich in midweek as Lee Hodson came in for Lloyd Doyley.
Boro had picked up four points from their previous two games and they made a bright start here.
Nicky Bailey’s long-range effort was comfortably saved by Hornets keeper Scott Loach, while Tony McMahon shot wide from the edge of the box.
At the other end, Graham, who made 15 appearances in four years with the Teessiders, threatened with a cross into the six-yard area that no one could get on the end of but the in-form striker then opened the scoring in the 28th minute.
Don Cowie played in Graham, who cut inside and onto his right foot before firing past Paul Smith to register his sixth goal in as many matches.
It was a scarcely deserved lead as Boro had been dictating the tempo of the game but Australian striker McDonald levelled matters five minutes later when he swept home from Barry Robson’s right-wing cross.
Chances were at a premium for the remainder of the half but Taylor put the hosts in front just before the interval.
Midfielder Robson was again involved as his low 20-yard strike was parried by Loach into the path of Taylor and he made no mistake with the rebound.
Buoyed by the strike, Boro continued to assert their dominance on the encounter in the second half.
Taylor nearly doubled his tally but his goalbound shot was blocked by Watford defender Mariappa, whilst McMahon was inches wide with a 25-yard strike.
Boro’s profligacy in front of goal nearly came back to haunt them for a second time but on this occasion, Graham’s strike from 12 yards was tipped over by Smith.
Watford’s mood was further dampened when Mariappa was shown a second yellow card in the 88th minute after he had hauled down Emnes.
Joe Bennett had an opportunity to make the points safe but his strike from the edge of the area produced a fine save from Loach.