Ally Roy struck the bar on the 88th minute when the ball dropped to him from a corner but he just couldn’t his strike down and hit the net.
The defeat means Derry are now eight points behind Waterford who occupy the final automatic European spot.
Dessie Hutchinson put Waterford ahead early on and they missed other chances before Dean Shiels levelled on 31.
Gavan Holohan restored the visitors’ lead in first-half injury-time with a deflected effort after poor defending.
Only a succession of great saves by keeper Gerard Doherty kept Derry in the game in the second half before Roy almost levelled the game as the 90 minutes approached.
It was Waterford’s third victory in four league contests against the Candystripes this season.
With champions Cork City and Dundalk out of sight for the other teams at the top of the table, third-placed Waterford are now eight points ahead of Derry with only seven full series of fixtures remaining in the league.
Next up for Derry is another home game, this time in the Irish Daily Mail FAI Cup next Friday night, August 24, against St Pat’s Athletic (kick off 7.45 pm).