A goal from the Mexican and the Austrian eased the Hammers' relegation fears, moving them level with Watford and five points clear of the Premier League drop zone.
The victory, and performance, proved just how far West Ham have come under David Moyes, whose first game in charge was a dispiriting 2-0 defeat to the same opposition in November.
It also illustrated the need for David Sullivan to ensure Moyes extends his stay at the club, with his contract expiring at the end of the season.
Before the match West Ham's under-fire joint-owner admitted he wanted the Scot to remain at the helm.
Tellingly, Sullivan also announced he would be stepping away from transfers following the club's failure to strengthen in the January window.
Yet it is the Hammers' marquee summer signings, Hernandez and Arnautovic, who are now flourishing following the slow starts to the season which mirrored that of the team.
Watford actually carved open the first opportunities of an open game, Etienne Capoue with a shot deflected over and, from the corner, Adrian Mariappa's header forcing a smart save from Hammers goalkeeper Adrian.
But when Arnautovic, fit again after three games out injured, began to get on the ball West Ham looked a totally different team, especially to the one which surrendered so meekly at Brighton last weekend.
Arnautovic's mazy run into the area was clumsily ended by Mariappa's challenge but referee Graham Scott saw nothing wrong and Joao Mario fired the loose ball straight at Hornets custodian Orestis Karnezis.
Hernandez then had a goal ruled out for the narrowest of offsides as he headed a Mario free-kick past Karnezis.
Arnautovic was presented with a glorious chance when James Collins headed the ball across goal, only to shoot too close to Karnezis.
Watford, having stunned Chelsea 4-1 in their last outing on Monday night, dominated after the break but without really testing Adrian, other than a Gerard Deulofeu free-kick which the Spaniard palmed away at his near post.
Hernandez looked odds on to double the lead with 20 minutes left when he sprung the offside trap and skipped past Mariappa and Sebastian Prodl, but he dawdled momentarily and allowed Karnezis to smother the ball.
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