It looked like Jonathan Macken's close-range strike midway through the second half was going to be enough for the Tykes, but with two minutes remaining Will Hoskins forced a mistake out of keeper Heinz Muller and Smith scrambled in his 16th of the season.
Simon Davey's men showed men gave as good as they got in the first-half alone and created the majority of the chances, although the better ones fell to Watford.
The Hornets were unlucky not to take the lead in the 22nd minute with a move down the middle of the pitch that started with a clearance from keeper Scott Loach, went through Jack Cork and Jobi McAnuff and ended with Ross Jenkins feeding Tamas Priskin, who struck an early right-footed shot from the edge of the area that beat the dive of Muller, but not his right-hand post.
Barnsley also struck the woodwork moments later though, albeit in somewhat more fortuitous fashion, with Bobby Hassell's cross-cum-shot from the right appearing to deceive Loach as it cleared him and rebounded down off his crossbar.
Chances were fewer in the opening half of the second period, but it was Barnsley who were the better side and deservedly took the lead after 67 minutes.
Adam Hammill, who had barely been on the pitch for ten minutes after replacing Daniel Bogdanovic, twisted and turned on the right before swinging a cross into the heart of the six-yard box, where Macken was the first player to react to convert right-footed from close range.
Watford struggled as an attacking force after the break, but with two minutes remaining they were able to stretch their unbeaten run at home to seven games.
A free-kick from the halfway line was pumped into the box, substitute Hoskins challenged Muller and then did well to square the ball across the six-yard box and Smith bundled home at the far post.
Watford were effectively safe before kick-off, but it is still a nervous time for Barnsley.