The Championship side have taken the move to end Paulo Pezzolano's contract after just a brief period and 10 games in charge, confirming the reappointment of ex-manager the Spanish coach as his successor.
It is understood that Pezzolano, appointed in the spring to take over from Tom Cleverley, along with his technical staff, were told not to lead training on Wednesday as speculation about his imminent departure grew on the previous day.
The 40-year-old was summoned for a meeting where he became the 11th manager Watford have moved on since the start of the year 2020.
"The club is very pleased to reappoint Gracia," said Watford's chairman and CEO. "His enthusiasm, leadership and well-defined plan will help us build stability, unity and positive energy.
"We are sure many fans who wished Gracia had never departed in 2019. With this talented team, we are convinced his know-how and qualities are precisely what we need now."
The returning manager guided the team to the FA Cup showpiece for the second time in their history in 2019, but was dismissed several games into the following campaign and last managed at Leeds United in 2023.
"For me, the feeling I have right now is that I'm going back home. It was the most enjoyable time of my professional life," he stated. "I have fond recollections and we have loose ends at Watford. For us, it's another important step in our journey.
"This is something special for us, and at the same time we are highly motivated for this campaign. If we are united, we are more powerful."
The decision to remove Pezzolano arrives despite their victory against Oxford at their home ground on the weekend, which lifted them to eleventh place in the Championship after a slow start that yielded a handful of points from the first six games.
Pezzolano is said to have departed dismayed by the decision to let him go, having led the side to a undefeated streak of three games that featured a victory at home over Hull City and a draw at Fratton Park, leaving them three points off the promotion playoffs.
The coach arrived soon after the end of last season with a proven track record of guiding teams to advancement in La Liga, Brazil and Uruguay.
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