Town are expected to name the successor to Mark Robins during the international break and Academy chief Lillis had hoped to hand over with another win behind him.
Watford, however, dug deep following the sending-off of Gabriel Tamas for a second foul in five minutes on Harry Bunn with the teams locked at 2-2.
Keith Andrews then put 10-man Watford in front before Almen Abdi rounded off a fine counter-attacking move in stoppage-time to get his second of the day and ensure the win.
Troy Deeney’s first-half opener had been cancelled out by Bunn shortly after the restart and then Murray Wallace headed home after Abdi had scored.
“Mass disappointment is my feeling because we’ve come here with a game plan and I thought we were magnificent against a really top team who are going to do well this season – they’re up there already,” said Lillis.
“I’m gutted really, especially with one of the decisions where Harry’s (Bunn) got pushed in the back and I think a penalty then would have made it 2-1. We got momentum and then we came back and showed character to get to 2-2. We’re disappointed with their headed goal, we’ve got to take more responsibility, but we’ll look at that on Monday and we’ll have to name names and learn from it.”
Despite defeat, Lillis praised the game as a spectacle and felt the ruthless finishing of Watford shows what happens when you make mistakes at this level.
“I thought it was a great game, I really enjoyed it. It was end to end, 22 guys having a right go at it to get a result but the Championship – I’ve been in it now for four games – is cruel and people will make you pay for your mistakes if you slip.”
Beppe Sannino resigned as Watford head coach last night.
Watford: Gomes, Tamas, Ekstrand, Angella, Anya (Hoban 76), Abdi, Munari (Andrews 45), Tozser, Pudil, Deeney, Forestieri (Paredes 82). Unused substitutes: Vydra, Dyer, Ighalo, Bond.
Huddersfield Town: Smithies, Dixon (Stead 86), Wallace, Lynch, Robinson, Butterfield, Coady, Majewski, Scannell, Vaughan (Wells 73), Bunn (Hammill 81). Unused substitutes: Ward, Murphy, Sinnott, Crooks.
Referee: N Swarbrick (Lancashire).
Man of the match: Troy Deeney.