Barcelona said a fee of 13 million euros (11.5 million pounds) along with another 4 million in variables was agreed for the transfer.
"We are very pleased to welcome Gerard back to Vicarage Road and thank FC Barcelona for their part in concluding this deal," Watford Chairman & CEO Scott Duxbury said on the club's website https://www.watfordfc.com.
"Our ambition to succeed and grow in the Premier League remains as strong as ever."
Deulofeu, who has four caps for Spain, progressed through Barcelona's youth system and made his senior debut in 2011 but failed to establish himself at the La Liga outfit.
The Spaniard then moved to Everton in 2015 but re-joined Barcelona in 2017 after a loan spell at AC Milan.
(Reporting by Aditi Prakash in Bengaluru; Editing by Christian Radnedge)
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