The Hornets boss made five changes from the side that drew with Charlton last time out, but was forced to look on as some shocking defending contributed to Andy Keogh grabbing a brace and further goals being scored by Stephen Elliott and Jay Bothroyd.
Wolves got off to the perfect start in the fifth minute. Malky Mackay, under pressure from Bothroyd, stumbled as he sought to head clear and the ball bounced through to Keogh, who, from 20 yards out, produced a delightful right-footed lob that gave Richard Lee little chance.
It took Watford time to settle but they were nearly back on terms in the 17th minute when Nathan Ellington curled a free-kick over the wall and out of the reach of Wayne Hennessey, only to watch the ball rebound to safety off the keeper's left-hand post.
The visitors though, continued to look the better side and it was their turn to hit the woodwork in the 33rd minute. Following a corner from the right, Hornets old boy Darren Ward pulled away from Mackay and headed down and against Lee's right-hand upright from the edge of the six-yard box.
Wolves though, did put one foot in the fifth round in the 58th minute when they tore apart an alarmingly fragile home defence with an incisive passing move.
The impressive Matthew Jarvis started it by finding Keogh in space on the left side of the area. With only new Hornets signing Mat Sadler covering in the middle, the scorer of the first goal waited for Elliott to get up in support before sliding the ball across for Elliott to calmly beat Lee to make it 2-0.
A bad afternoon for the home side got worse ten minutes later when they were ripped apart at the back again. This time Darren Potter found Jarvis breaking into the left side of the six-yard area and he put the third on a plate for Bothroyd.
However, there was something for the home side to cheer three minutes later when Ellington battled to get on the end of Steve Kabba's right-wing cross and the ball broke for John-Joe O'Toole, who calmly prodded it past the helpless Hennessey.
But Wolves completed their comfortable progression through to round five in the last minute of normal time when Bothroyd found Keogh, who shifted the ball onto his right foot before calmly side-footing home his second of the game.