Full-time from The Den
Vydra struck the first on 26 minutes with a super volley from the edge of the area and Guedioura added a second after 56 minutes, rifling the ball home from close range to leave The Lions seven points from safety with five games remaining.
Manager Neil Harris' charges could hold their heads high after giving their all against a Hornets side who were made to battle all the way before clinching a victory that keeps them in the hunt for a top two finish.
Both teams were forced to make changes to their starting line-ups; Millwall's centre-half Jos Hooiveld failed a late fitness test and was replaced by Mark Beevers whilst Watford's Craig Cathcart (calf) was sidelined, handing Cardiff City loanee Matthew Connolly an opportunity. The visitors also recalled goalscorer Vydra, with Odion Jude Ighalo dropping to the bench.
The Hornets, second highest scorers in the Championship, could have taken the lead with just 42 seconds on the clock when Troy Deeney broke the offside trap and raced clear onto Daniel Tozser's clipped pass, but Lions keeper David Forde was quickly off his line and brilliantly blocked the striker's effort.
Millwall's first really incisive move came in the sixth minute when Jimmy Abdou, deep in his own half, slid the ball to Ed Upson who in turn played a delightful forward ball for Lee Gregory, but Watford keeper Heurelho Gomes bravely collected at the striker's feet and the half-chance was gone.
Gregory went close on eight minutes when a corner was half-cleared and, receiving the ball with his back to goal, the striker spun on a sixpence and curled his shot narrowly wide of the upright.
The Lions has a let-off two minutes later when Deeney looped a header over the bar from Guedioura's cross, although the lively Aiden O'Brien tested the Hornets keeper after 13 minutes, shimmying past Matthew Connolly on the left flank and whipping over a cross-shot that Gomes did well to gather.
Millwall had the first of two penalty appeals in the game turned down in the 16th-minute when Upson, excellent once again throughout, appeared to have his heels clipped by Ben Watson. Referee Simon Hooper waved play on, much to the frustration of the home camp.
Watford broke the deadlock midway through the half with a well crafted goal. Tozser's raking pass picked out Ikecha Anya on the left and the pacey winger strode forward before slipping the ball to Vydra, who connected superbly with a volley that gave Forde no chance as it arrowed into the bottom right corner.
Martyn Woolford saw a 39th-minute drive blocked and then midfielder Abdou tried his luck with a first-time effort that found it's way through a crowd of players, only to be turned away by keeper Gomes at full stretch in the dying seconds of the first-half.
Millwall came flying out of the traps after the break and Williams was a whisker away from levelling with a sweetly struck 25-yard free-kick on 50 minutes.
However it was Watford who grabbed a second goal shortly after. Vydra released Deeney on the left, he held up play before laying the ball off to Anya and the winger in turn picked out Guedioura, who calmly steered the ball home.
O'Brien was agonisingly close to reducing the arrears in the 65th-minute when a mistake by Connolly let the young striker in on goal, but Gomes stood his ground and blocked the striker's effort at the near post before Connolly hacked the loose ball away to safety.
At the other end Gomes did well to punch clear under pressure from sub Stefan Maierhofer as he rose to connect with a tantalising cross from fellow sub Lee Martin which had been flicked into his path by O'Brien as The Lions tried to find a way back into the game.
Magaye Gueye, on for Woolford, slammed a shot into the ground and the ball spun over the ball as Millwall pressed forward again, before the home side had what looked a decent penalty appeal again rejected by the officials, this time when Angella seemed to palm away O'Brien's stinging shot.
Forde denied Watford a third goal with a great reflex save to parry Deeney's powerful drive from 14 yards, but a third goal for the visitors would have been harsh on a gutsy Lions side that gave their all.
Millwall: Forde, Cummings, Harding (Maierhofer, 73mins), Abdou (Martin, 68mins), Nelson, Beevers, Woolford (Gueye, 58mins), Williams, Gregory, O'Brien, Upson, Subs not used: Archer, Dunne, Bailey, Taylor-Fletcher.
Bookings: Harding (54mins), Nelson (74mins), Beevers (80mins)
Watford: Gomes, Connolly, Angella, Hoban, Paredes (Motta, 90+2mins), Watson, Tozser, Guedioura, Anya (Abdi, 60mins), Vydra (Ighalo, 83mins), Deeney. Subs not used: Bond, Munari, Layun, Pudil.
Scorers: Vydra (26mins), Guedioura (56mins)
Ref: S. Hooper
Att: 12,075 (away 2,840)