The Fulham goalkeeper fell awkwardly on his neck in a challenge with Darius Henderson and team-mate Carlos Bocanegra.
The drama was relentless at Craven Cottage, as former Watford striker Heidar Helguson saw two goals both ruled out for offside.
Then, right at the end of the ten minutes added on for the injury to Niemi, Tamas Priskin was sent off for a second booking.
Helguson thought he had given Fulham the led in only the seventh minute when he headed home from Liam Rosenior's cross.
However, as the Icelandic striker wheeled away to celebrate, he was pulled back by referee Steve Bennett who ruled the goal out for offside.
At the other end, Anthony McNamee missed a glorious chance to put Watford ahead when he headed Tommy Smith's cross over from three yards.
But it was Fulham who dominated after that. Bocanegra was first denied by Ben Foster who saved well down to his left when the American was allowed a free shot at goal from Wayne Routledge's corner.
Tomasz Radzinski was then marginally off target with his lob after latching on to Bocanegra's pass.
Soon after Brian McBride stuck his diving header inches wide of the post after a smart cross by Radzinski.
The pressure from Fulham did not ease off with Moritz Volz, Radzinski and Routledge surged forward at an alarming rate.
The pressure appeared to have finally taken its toll on Watford as Helguson redirected Michael Brown's shot past Foster in the 34th minute.
But once again Helguson's effort was ruled out by the referee's assistant, who incorrectly flagged for offside, leaving Fulham boss Chris Coleman seething.
Watford hustled some response and they were assisted by some mistakes by the Fulham back four.
But with Smith missing two half-chances it is easy to see just why a goal-scorer is top of Watford boss Aidy Boothroyd's shopping list.
After the restart it was Fulham who again looked likely to break the deadlock through McBride and Helguson.
But Watford came closest to scoring, somewhat against the run of play, when Alhassan Bangura struck the post in the 52nd minute after McNamee had supplied the cross.
However, the lively match took a sour turn when Niemi suffered a horrible neck injury.
The goalkeeper climbed up to head the ball clear by was upended in the challenge with Bocanegra and Henderson.
He landed head first and needed seven minutes of attention before being carried from the ground in a neck brace.
Coleman introduced Luis Boa Morte just over the hour mark and he almost made an instant impact.
His inviting cross was perfect for Helguson and McBride but neither could not supply the finish from four yards out.
Fulham continued to threaten and Radzinski was denied from close range by Foster at the far post.
Collins John then somehow squandered a glorious chance in injury time. The Dutchman rounded Foster but planted his shot wide, despite having an open goal.
At the other end the drama would not let up as Henderson struck the upright with a blistering drive after a good turn.
And to complete the excitement, Watford were reduced to ten men when Priskin was sent off at the death for a second booking.