Tom Cleverley's hosts moved above Burnley, West Brom and Millwall thanks to a 54th-minute strike from the Ivory Coast forward, who had scored four times at Sheffield Wednesday last weekend but only once before that this term.
Ryan Andrews' interception reached Kwadbo Baah just inside his own half and the winger out-paced Ciaron Brown down the right flank before squaring for Bayo.
Oxford goalkeeper Jamie Cumming parried his first attempt but the striker despatched the rebound.
Watford boss Cleverley told "role model" Bayo to enjoy his rich vein of goalscoring form.
"A striker will always be judged on the goals he scores and rightly so, but the reason he still played in the two months when he didn't score is because of the job he does for the team," said Cleverly of the 27-year-old striker.
"His out-of-possession responsibility, his hold-up play, how good he is back to goal and his great character is why he stays in the team even through dry period. He thoroughly deserves the five goals he scored this week.
"I want him to enjoy his goals. It had been a tough period because of the lack of them."
Oxford had chances to level, including one in stoppage time when substitute Mark Harris sent an overhead-kick over the bar from two yards out after Watford had failed to deal with a free-kick.
Manager Des Buckingham said: "I'm not quite sure how he has done that - it looked harder to miss than score. At this level you have to take those or it costs you."
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