Arsenal's Premier League title hopes suffered a huge blow after Watford produced a brilliant performance to claim a 2-1 victory at the Emirates Stadium on Tuesday evening.
The Gunners, who were once again without manager Arsene Wenger in the dugout because of a touchline ban, were punished by a lacklustre start and found themselves 2-0 behind thanks to goals from Younes Kaboul and Troy Deeney.
The hosts rallied after the break, pulling a goal back through Alex Iwobi and they almost snatched an equaliser at the death with substitute Lucas Perez's shot smashing off the crossbar.
However, Watford held on to end a run of six league games without a win and move up to 13th, eight points clear of the relegation zone.
Wenger's men drop to third after the shock defeat, nine points behind leaders Chelsea, who they face in a crucial Saturday lunchtime showdown, live on Sky Sports.
Watford, who handed M'Baye Niang his debut, started brightly with the on-loan AC Milan forward causing Arsenal problems down the left.
As brightly as Watford started, Arsenal were slow out of the blocks and they were punished in the 10th minute when Kaboul's shot deflected off Aaron Ramsey and past the dive of Petr Cech.
Things got even better for Walter Mazzarri's side just three minutes later as a poor throw-in allowed Etienne Capoue to burst into the Arsenal half. He drove past Shkodran Mustafi before getting a shot away which was blocked by Cech. However, the ball fell to Deeney, who made absolutely no mistake from close range.
Arsenal were shell-shocked and they faced further disruption when Aaron Ramsey was forced off with a calf injury.
Alex Oxlade-Chamberlain came on to replace the Wales international and the Gunners thought they had a penalty when Nacho Monreal went down in the box, but referee Andre Marriner booked the Spain full-back for simulation.
Arsenal then needed Cech to deny Sebastian Prodl and Daryl Janmaat in quick succession and keep them in the game.
The jeers rang around the Emirates stadium after Marriner blew the half-time whistle as Arsenal fans vented their frustrations, although half-time substitute Theo Walcott offered some hope with a decent strike on goal shortly after the interval.
He was involved again minutes later, producing Arsenal's first shot on target as Gomes saved with his legs before denying Iwobi from close range.
Alexis Sanchez saw his own penalty appeal turned down but was then on hand to cross for Iwobi, who steered a finish back past Gomes to hand the hosts a lifeline.
Perez rattled the crossbar with a rasping drive but it was a rare moment of danger for the visitors.
Arsenal have had plenty of joy already late on in games this season but they could not find an equaliser as Watford, who sold striker Odion Ighalo to Chinese Super League side Changchun Yatai earlier in the evening for £20m, sealed a vital win for Mazzarri.
Player ratings
Arsenal: Cech (7), Gabriel (5), Mustafi (6), Koscielny (6), Monreal (6), Coqulin (5), Ramsey (5), Iwobi (7), Ozil (6), Alexis Sanchez (7), Giroud (5).
Subs used: Oxlade-Chamberlain (6), Walcott (7), Lucas Perez (6).
Watford: Gomes (8), Cathcart (7), Kaboul (8), Prodl (7), Britos (7), Behrami (6), Janmaat (7), Cleverley (7), Capoue (8), Niang (8), Deeney (8).
Subs: Doucoure (6), Success (6), Okaka (n/a).
Man of the Match: Etienne Capoue