Town's 19 match unbeaten League run at Portman Road came to an end against high flying Watford.
The Hornets went in front just past the half hour mark when Tommy Smith was allowed the space to head in Matt Sadler's corner from five yards.
Nathan Ellington extended the visitors' lead early in the second-half. Jon Walters notched his 11th goal of the season after Jason De Vos had headed on a free-kick but Blues couldn't find an equaliser as the visitors chalked up an 10th away win of the season.
Town boss Jim Magilton kept with the same side that started at Sheffield Wednesday last weekend, David Norris and Stephen Bywater making their home debuts.
It was Watford who started the brighter though, Darius Henderson failing to connect with a left wing cross when six yards out.
Norris had Town's first effort, his shot from 20 yards going harmlessly wide. Alan Quinn's free-kick then headed goalwards by Alex Bruce but the defender was penalised for a push.
Pablo Counago and Walters linked up to set up Alan Quinn and his first time pass almost put in Counago, Danny Shittu clearing.
After a fairly tame opening half hour Watford took the lead, Smith's shot blocked for a corner and from Matt Sadler's flag kick, the former Sunderland wideman ghosted off the line to head in from five yards as Bywater challenged.
Town responded, Owen Garvan's corner flicked on by Walters, Leigh Bromby in the right place to clear, then Counago's pass almost released Walters down the left channel.
Bywater held firm to punch clear from another dangerous inswinging corner, John Eustace picking up the first booking of the game for handball after Town looked to counter.
Blues' brightest spell came in the last 10 minutes leading up to half-time, David Wright's cross was cleared by Bromby, Walters fired wide from 30 yards, then saw his shot beaten out by Richard Lee after the best move of the opening 45 minutes.
Town made a change at the break, Alan Lee replacing Miller, Norris moving inside to partner Garvan in the middle of the park.
Ellington volleyed the first opening of the second-half into the sidenetting as Watford again started the half on the front foot, while at the other end Norris' bravery created a chance for Quinn, the Irishman hooking the ball over the bar.
Henderson joined Eustace in referee Andy D'Urso's notebook for persistent fouling, the Hornets' striker well marshalled by the excellent De Vos.
Town were inches away from an equaliser on 51 minutes when Lee lifted the ball over Watford 'keeper Lee only to see his effort cannon back off the bar.
Jordan Stewart replaced Lionel Ainsworth in Watford's first change and the former England U21 international was involved in the Hornets' second goal on 56 minutes, his cross shot smashed into the net by Ellington after Henderson has missed his kick.
Counago was judged to have been offside from Garvan's touch as Town looked for a way back into the game.
Blues made a double switch on the hour, Danny Haynes on for Counago and Garvan making way for home debutant, Velice Sumulikoski.
Wright hacked clear under pressure from Henderson as Watford looked to wrap up the points, Bywater then saving at full stretch from Ellington's header.
Alhassan Bangura became the third Watford player to be booked after flattening Norris, Town getting back in the game from the free-kick with De Vos heading back across goal and Walters toe poking the ball into the net on 70 minutes.
Bromby was booked for timewasting at a throw-in as the game went up a few degrees in temperature, Henderson then heading over from eight yards. John-Joe Toole replacing Ellington for the last 15 minutes.
Lee was denied by Shittu after Haynes' header on as Town pressed forward for an equaliser, Walters' cross deflected off Sadler and almost drifting into the net.
Watford made a final change with Steve Kabba replacing Smith on 81 minutes.
Sumulikoski volleyed wide from 20 yards, Lee then forced out as he looked to get in on Walters' cross as Watford held on to go back to the top of the Championship.
Town: Bywater, Wright, De Vos, Bruce, Harding, Norris, Miller (Lee 46), Garvan (Sumulikoski 60), Quinn, Walters, Counago (Haynes 60). Subs not used: Colgan, Naylor.
Watford: Lee, Mariaappa, Shittu, Bromby, Sadler, Smith (Kabba 81), Bangura, Eustace, Ainsworth (Stewart 54), Henderson, Ellington (O'Toole 75). Subs not used: Poom, Doyley. Booked: Eustace, Henderson, Bangura, Bromby.
Att: 24,227
