Arsenal threw away a 2-0 lead at Watford through defensive errors as Quique Sanchez Flores' side earned a 2-2 draw in the first game of his second spell.
A typically expert finish from Pierre-Emerick Aubameyang had Arsenal ahead (21) despite Watford's calls for a foul in the build-up, and the Gabon striker made it 2-0 shortly after with a simple finish from a fine Gunners move (32).
- Arsenal's 'semi-pro' display slammed
- How to watch Premier League highlights on Sky
- The Premier League table
Watford halved the deficit just after the break through Tom Cleverley as Sokratis was caught playing out from the back (53), and Arsenal shot themselves in the foot again as David Luiz tripped sub Roberto Pereyra in the area, and he duly dispatched the penalty (81).
Watford should have won it in a chaotic final 15 minutes, but the thrilling affair ended level, meaning Arsenal stay seventh on eight points from five games, while Watford stay bottom but with their confidence back.
Watford: Foster (6), Femenia (6), Kabasele (6), Dawson (5), Holebas (5), Capoue (7), Hughes (6), Doucoure (6), Cleverley (8), Deulofeu (8), Gray (5)
Subs: Pereyra (7), Sarr (6), Janmaat (NA)
Arsenal: Leno (6), Maitland-Niles (6), Sokratis (4), Luiz (4), Kolasinac (6), Ceballos (5), Guendouzi (5), Xhaka (6), Ozil (6), Aubameyang (7), Pepe (6)
Subs: Willock (5), Torreira (5), Nelson (5)
Man of the match: Gerard Deulofeu
How Arsenal's mistakes cost them dear
Though Arsenal looked clinical in the final third in the first half, they faced 31 shots at their goal, the most they have ever faced in a Premier League fixture since Opta began collecting such data in the division in 2003/04.
Sanchez Flores made two changes to his first line-up in his second spell at Watford; Gerard Deulofeu and Etienne Capoue came in, replacing Roberto Pereyra and the injured Craig Cathcart.
Arsenal also made two changes; Mesut Ozil returned for the injured Alexandre Lacazette, while Dani Ceballos replaced Lucas Torreira, who was on the bench.
After a fine reception for returning boss Sanchez Flores, Watford were on top in the early stages, going closest through Tom Cleverley's long-range effort tipped over the bar by Bernd Leno, as Arsenal struggled to get tight.
But the Gunners took the lead with their first meaningful attack. Watford pleaded for a free-kick on halfway as Dani Ceballos robbed Will Hughes, but play continued as Sead Kolasinac fed Aubameyang, whose emphatic touch and low shot beat Ben Foster. VAR Daniel Cook briefly looked, but was satisfied with the initial decision, unlike Watford fans.
It was 2-0 just 11 minutes later as Mesut Ozil, playing his first minutes this season, brilliantly fed Ainsley Maitland-Niles in-behind the defence on the right of the box, and his centre was simple for Aubameyang to turn home. Though the striker took the glory, both Maitland-Niles' run and Ozil's spot were impressive.
Having nearly been caught out playing out from the back in the first half, Arsenal didn't learn their lesson. Sokratis' forward pass from six yards out after a Leno goal kick was intercepted by Gerard Deulofeu, and the ball fell kindly for Cleverley to sweep home. Replays showed Deulofeu was in the box when the goal-kick was taken, but the goal stood.
Watford then had their tails up, peppering Leno's goal from all angles, as Arsenal brought on Joe Willock, Reiss Nelson and Lucas Torreira for Dani Ceballos, Mesut Ozil and Matteo Guendouzi in an attempt to shut down the contest.
Watford sub Ismaila Sarr went close, dragging wide as he turned with his back to goal following Deulofeu's cute pass, but they got the goal their pressure deserved through another Luiz mishap.
The Brazilian was outdone by Pereyra's tricky feed just inside the box, and it was the Argentine himself who dusted himself off to slot bottom left corner for 2-2.
The roof would have lifted off Vicarage Road had Deulofeu not missed the far post by inches just minutes later, or had Leno not saved from Abdoulaye Doucoure at point-blank range, but it somehow ended level despite the chaos of the 'you have a go, we have a go' final 15 minutes.
What the managers said
Unai Emery: "It was two different halves. In the first we controlled the match how we wanted, in the second they pushed for our mistakes, and we did more than we wanted to do. We need to think about how we can improve, how we can do better.
"We can grow up with the mistakes and learn for the future matches. We said at half-time that 2-0 is not enough, and in the second half we needed to do the same work, but knowing they would do more. They did that, and we couldn't break the lines.
"I continue with our way of working. We need to improve, take some information from this match. We can be disappointed, but we learn about that."
Quique Sanchez Flores: "To get one point against Arsenal is really good. In my first season with Arsenal, we didn't get one, so it is welcome! Defensively it is important, we didn't concede too much.
"The players trained really well during the week, they were powerful and confident, and they showed me today we are very brave and are able to do very good things for the future."
Arsenal's second-half capitulation was like watching a 'semi-pro' team, says Graeme Souness. Arsenal have now conceded seven goals in their last three goals, many of them coming from mistakes at the back, and Souness did not hold back in his assessment of the Gunners in the Sky Sports studio.
"They capitulated in the second half, Arsenal. They didn't win a challenge. If you're an Arsenal supporter watching that, you must be scratching your head. It's two different teams. It's as if here's the first team in the first half, and a second one after half-time. Proper teams don't play like that.
"Arsenal in that second half were like a semi-professional team playing football. By that I mean they were not learning from the mistakes they were doing time and time again."
What did Sanchez Flores change?
Sky Sports' Ron Walker
'It's still very early days in Quique Sanchez Flores' second Watford stint, but there was an extra zip in their play and some more effective defending too. Capoue was their extra man in midfield who sat in front of the back four when required but also harried Arsenal in possession.
'They still had shaky moments and conceded twice, but restricting Arsenal to seven shots across 90 minutes was impressive.
'With the ball, Watford had more purpose than they have done in some time, got the ball forward with pace, particularly after half-time, and Cleverley in particular looked a man rejuvenated in behind Gray. Both had looked off the pace in Watford's sluggish draw at Newcastle.
'Deulofeu also had his best game in some time, dropping between the lines and causing the Arsenal defence all sorts of problems.
'More than anything, it was a new-found confidence which was most evident in this Watford performance, as many of the top performers had shown their ability under Javi Gracia in the past - but tactically there was plenty to be pleased with too.'
- This was the first time that Arsenal failed to win a Premier League match in which they were at least two goals ahead since April 2016 when they drew 3-3 with West Ham, and the first time Watford avoided defeat in the league after being at least two goals behind since January 2018 v Southampton (2-2).
- Since the start of last season, Arsenal's players have made a combined 14 errors leading to opposition goals in the Premier League, at least two more than any other club in this time.
- Since the start of last season, no side has conceded more goals via penalties in the Premier League than Arsenal (10 - level with Brighton), with the Gunners already conceding three this season alone.
Arsenal go to Eintracht Frankfurt in their first Europa League group-stage clash on Thursday at 5.55pm, before hosting Aston Villa in the Premier League on Sunday at 4.30pm. Watford go to champions Manchester City in the Premier League at 3pm on Saturday.