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Hughes matched a season worst by allowing seven earned runs in four innings, and dropped to 0-4 with a 6.75 ERA in his past four road starts.
"He made mistakes in the middle of the plate and they didn't miss them," manager Joe Girardi said.
In sharp contrast to his road struggles, Hughes has gone 4-0 in his past four starts at Yankee Stadium, and hasn't lost in the Bronx since June 20 against Atlanta.
Hughes, who gave up four runs in 4 1/3 innings of a 6-5 loss at Detroit last week, lost consecutive starts for the first time since dropping back-to-back outings April 25 at Texas and May 1 against Baltimore.
"It's been a battle this road trip," Hughes said. "I need to hopefully hit the reset when we get back home, kind of clear my mind and get back to doing the things that I was doing earlier, just try and forget about these two."
Hughes (11-10), said poor command of his fastball is to blame for his recent struggles.
"It's kind of just been all over the place and I haven't really been in control out there," he said.
Hughes surrendered nine hits, walked one and struck out four.
Davis made the defensive play of the game, scaling the left field wall in the seventh to snare a potential long ball off the bat of New York infielder Casey McGehee.
"He hurt us today, there's no doubt about it, offensively and defensively," Girardi said of Davis.
Blue Jays manager John Farrell called Davis' catch "outstanding," and even McGehee was impressed.
"When I saw him turn his back I thought he gave up on it," McGehee said. "Little did I know he was just timing it up.
"I guess I've got to hit it a few feet farther next time," McGehee added.
Rookie Moises Sierra had three hits and J.A. Happ pitched 5 2/3 innings for his first win since joining Toronto in a July 20 trade with Houston.
"He did a good job," McGehee said of Happ. "I've seen him quite a bit in the National League. He's got three quality pitches. When he's got all his pitches going, he's a handful."
Happ (1-1) allowed four runs and six hits, walked none and struck out four.
Casey Janssen finished in the ninth for his 15th save in 16 chances, helping the Blue Jays avoid a sweep. Toronto had lost 11 of 13 coming in.
"We've been in a tough stretch," Farrell said. "A win always lets people take a deep breath."
With outfielder Colby Rasmus and second baseman Kelly Johnson both nursing groin injuries and shortstop Yunel Escobar still sore after being hit on the elbow by a pitch Saturday, Encarnacion was the only player from Toronto's opening-day lineup to start the game. Johnson came on as a pinch hitter in the seventh.
Led by Davis and Encarnacion, Toronto's makeshift lineup amassed 14 hits and 10 runs, one more than the Blue Jays scored over their entire five-game skid.
David Cooper's RBI single in the first gave Toronto its first lead of the series, and the Blue Jays piled on with a six-run fourth against Hughes.
McGehee put New York on the board with an RBI double in the fifth, but Toronto tacked on three more in the bottom half when Davis hit a bases-loaded double off former teammate Ryota Igarashi, recalled from Triple-A after CC Sabathia was placed on the disabled list.
Facing reliever Brad Lincoln, Jeter led off the sixth with his ninth homer, and Cano cut it to 10-4 with a two-out shot, his 25th.
New York cut it to 10-7, batting around in the seventh. Jayson Nix and Jeter hit back-to-back RBI doubles and Nick Swisher singled home a run, chasing Lincoln and bringing on Darren Oliver. Mark Teixeira doubled and Cano was hit by a pitch, loading the bases and bringing the go-ahead run to the plate in Andruw Jones, who grounded into a fielder's choice.
- Davis also had five RBI against the Los Angeles Angels on July 10, 2010, while playing for Oakland.
- Jeter came within a triple of the cycle.
- Yankees OF Ichiro Suzuki was held out of the starting lineup for the second straight game but pinch hit for Nix in the ninth.
- Girardi said INF Eric Chavez (back) has not been available since Friday, but should be ready to return Monday.
- With Sabathia (elbow) on the 15-day DL, RHP David Phelps will start for the Yankees when they return home to open a four-game series with AL West-leading Texas on Monday night. RHP Ryan Dempster will start for the Rangers.