The 39-year-old, who has also managed in his native Portugal and Greece where he won the title with Olympiakos Piraeus, quit his job at Hull against the club's wishes on Thursday after they were relegated to the Championship (second-tier).
"His pedigree and promise speaks for itself with his achievements in top divisions elsewhere across Europe, as well as his work at Hull City last season," Watford chairman and CEO Scott Duxbury said in a statement.
“We are delighted to have secured his services and to be welcoming a Head Coach of his profile and potential."
Silva was unable to secure top-flight survival at Hull but six home wins in 18 matches under him kept them alive in the relegation battle until the penultimate game of the season.
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The former Estoril and Sporting manager led Olympiakos to their record 43rd league title last June after winning the Portuguese Cup with Sporting the previous season.
Watford finished 17th in the league standings, one place and six points above the drop, last season under Mazzarri, who stepped down following a run of 10 defeats in 14 games.
(Reporting by Hardik Vyas in Bengaluru; editing by Ken Ferris)
