Reading had gone ahead early on through a Sean Morrison header but, after Millwall's Jimmy Abdou had been sent-off for a second yellow card, Liam Trotter levelled from the spot.
Reading went into the game with a record of only one defeat in eight matches and had scored in their previous six, including a 4-1 hammering of Doncaster Rovers.
After a cagey opening from both sides, Millwall created the first chance when Martyn Waghorn ran through alone. As he shaped to shoot, though, Wayne Bridge denied him with a fierce tackle. Reading took advantage of the narrow escape and went ahead in the ninth minute.
Millwall's Nicky Bailey fouled Chris Gunter, for which he was booked, and Jordan Obita swung over the free kick from wide on the right. The Millwall defence froze and allowed Morrison, the Reading centre back and captain, to nod home unchallenged past David Forde for his first goal of the season.
Millwall's task became even harder in the 85th minute, when midfielder Abdou received a second yellow card - for a wild lunge on McAnuff - and was dismissed.
But Trotter's late spot-kick, driven into the roof of the net after Federici had felled McDonald in the area, gained them a deserved point.
The visitors to the Madejski Stadium wilted in the late stages after losing captain Rob Jones to injury, and having already used their allocation of substitutes they were left exposed, allowing** **Reading to stretch their narrow lead to the final 4-1 comfortable margin of victory.
Reading went ahead early on when midfielder Danny Guthrie guided a long-range shot high into the roof of the net, but Doncaster levelled when substitute Theo Robinson latched on to a loose ball in the home area.
Reading regained their lead through Le Fondre before half-time and added two goals in the second half through Garath McCleary and Pavel Pogrebnyak.
Clarets striker Danny Ings scored his 11th goal of the season in all competitions in the 21st minute, firing in from Kieran Trippier's pass.
The hosts extended their advantage through Sam Vokes' eighth goal of the campaign in the 80th minute and while Jason Shackell's own-goal two minutes later made for a nervy finale, the home side managed to hold on.
Reading led three times thanks to a brace from Jem Karacan and an early Adam Le Fondre strike.
But Watford hit back with goals from Marco Davide Faraoni, Troy Deeney and a late goal from Fabbrini to prolong their unbeaten start to the Sky Bet Championship season.
Reading took the lead on eight minutes when Le Fondre fired the home side into the lead in spectacular fashion.
Watford keeper Manuel Almunia came off his line to clear a cross from Jobi McAnuff but could only punch it as far as the edge of the area. .
Le Fondre was waiting to hit a brilliant first-time volley through a crowded penalty area and into the top corner. It was no more than** **Reading deserved as they dominated the early exchanges with McAnuff and Royston Drenthe controlling much of the play for Nigel Adkins' side.
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