The Blues were two goals up inside the first 13 minutes and could have doubled that lead before the break as the punch-drunk visitors clung on.
Sergio Aguero added a third to seal the points midway through the second-half, and though the visitors pulled a late goal back, it was a game City were always in control of.
City welcomed back David Silva, Kevin De Bruyne was passed fit despite being carried of against Crystal Palace barely 48 hours earlier.
Raheem Sterling and Sergio Aguero were promoted from the bench as the Blues fielded something close to our strongest starting XI.
And what a start to 2018.
Having been frustrated in a bruising encounter with Palace on Sunday, the Blues looked fresh and revitalised from the off against Watford and were ahead inside 39 seconds.
Inevitably, Silva began the move, sending a measured pass into the path of Leroy Sane whose pinpoint cross found Sterling on the edge of the six-yard box and the Blues’ top scorer made no mistake.
That’s his 18th of an already remarkable season goal and it was also City’s fastest-ever Premier League.
The Blues should have gone two up just four minutes later as Sane again tormented the Watford defence before teeing up Stones, but the young defender skied his shot from close range.
The shivering Etihad crowd didn’t have to wait too much longer, however, as Silva played a pass inside the Watford full-back for De Bruyne and the Belgian’s cross was turned past Heurelho Gomes by Hornets defender Christian Kabasele with just 13 minutes on the clock.
Watford, who shipped six goals against the Blues on their own patch earlier in the campaign, must have feared another hammering – and De Bruyne slamming a free-kick against the bar not long after did little to suggest otherwise.
Not that Ederson was entirely redundant, twice denying Andre Gray with smart saves.
There were further half-chances for Aguero, Silva and Sterling before the teams went in for the break.
Within a few minutes of the re-start, De Bruyne whipped in a fine cross for Aguero but the City striker miscued his diving header well wide with the majority of the crowd waiting for the net to bulge.
With Watford pinned in their own final third for almost the entire half, it was inevitable that the Blues would score again at some stage and on 63 minutes, Aguero finally got his goal as Gomes spilled De Bruyne's cross and Aguero poked the loose ball home.
Andre Gray pulled a late consolation goal back on 82 minutes to reward the small band of Watford fans who made the journey north, but it was too little, too late from Marco Silva's out-of-form side.
All in all, a comfortable way to start 2018
Scoring after 38 seconds set the tone for the evening.
Star man: David Silva
Welcome return of our Spanish ace who had a hand in two of the goals this evening.
What it means:
City go 15 points clear of second place Manchester United, though Chelsea can reduce that to 14 if they beat Arsenal on Wednesday evening.
City take a break from Premier League action and turn to domestic cup competition instead, with successive home games in the FA Cup v Burnley and Bristol City in the Carabao Cup semi-final first leg.