Dan McNamara’s side headed into match as underdogs, with The Hornets playing a step higher in the pyramid.
But they were ruthlessly swept aside by a rampant Wolves outfit.
McNamara’s team opened the scoring in the ninth minute when Jade Cross, who has been top scorer in each of the last two seasons, pounced on a loose ball before firing home.
Nyah Edwards and Anna Price had chances to extend their lead further.
But just before the break Watford pulled level when Francesca Ali got in-behind the defence before crossing for Katie O’Leary to score.
Wolves’ strong start to the first-half was replicated following the break, as Kelly Darby struck to put her side back ahead.
Minutes after Cross had tested Chrissie Wiggins from a tight angle, Wolves were awarded a free-kick on the left.
Anna Morphet whipped a dangerous cross towards the far post and Darby made a clever run behind the Watford defence to guide the ball into the net.
Watford captain Adekite Fatuga-Dada was causing Wolves problems and she cut in from the right wing and used clever footwork to get inside the box.
But despite making herself some space, she then fired wide of Bec Thomas’s post.
Wolves responded and began ramping up the pressure with Cross, in particular, causing problems.
Jamila Palmer curled an effort wide having found space on the edge of the box.
But with 20 minutes remaining, they did make it 3-1 when Tammi George was clipped in the box and the referee pointed to the spot.
From 12 yards, Morphet made no mistake as she placed her spot-kick beyond goalkeeper Wiggins and into the bottom right corner.
Watford were sitting at the top of tier three before the league season was curtailed due to the coronavirus pandemic.
But Wolves made it 4-1 when Palmer let fly from 20-yards out.
With bodies blocking her view, Watford keeper Wiggins let the ball slip under her and could do nothing to stop it trickling over the line.
Despite a three-goal advantage, Wolves continued to press late in the game, with the final whistle sealing McNamara’s side now face a fourth round fixture with Women’s Championship side Blackburn Rovers.
Albion are out, though, after going down 4-1 at home to Derby County.