Former Millers striker Lee Williamson netted the only goal of the game in the second half to maintain Aidy Boothroyd's 100% League and Cup record for the 2007-08 season.
It was a tight battle between two of the three clubs who were relegated from last seasons Premier League campaign, but it was the Blades were got off to the better start, controlling most of the play for the first half an hour of the game.
The Blades shaded the opening exchanges and almost took the lead when Hornets keeper Mart Poom pared away Leigh Bromby's towering header following a dangerous Keith Gillespie corner.
When Watford did attack they failed to take advantage; Tommy Smith and Lee Williamson failing to test the might of Paddy Kenny with there headers.
After the break things were different, United looked despondent and disinterested; with the home side taking the lead and goi8ng onto win the game by that single goal.
Smith found Darius Henderson on the left hand side before cutting the ball into the box for Williamson to meet at the first attempt and slip past a stretching Kenny at his near post.
Two minutes later Henderson almost got a goal for himself when he fired his shot wide of the mark following a corner before Marlon King's long range effort sliced wide of goal.
On 70th minute mark the home side should have doubled there lead when Henderson got goal side of Jobi McAnuff's pass but his shot was more of a back pass to Kenny.
United then should have levlled the score but great work from Smith prevented Beattie from capitalizing; the Blades were awarded a free-kick in front on the D following a rough challenge on Michael Tonge; Tonge stepped up and drove the ball at Poom.
The Estonian international keeper did well to stop his free-kick but could only palm it in front of a gapping goal; Beattie chased and looked favourite to score but Smith appeared from nowhere to hook the ball away from danger.
In stoppage time James Beattie connected to a Gillespie corner to head over the top. In all it wasn't a great display by United and things will need to improve if there aim to be promoted come May.