Gracia’s return to Vicarage Road comes more than two years after he was sacked by Leeds United in May 2023, having been in charge for only 12 games, to make way for Sam Allardyce.
His first spell at Watford lasted from January 2018 to September 2019, that 20-month tenure being the longest enjoyed by any Hornets boss in the past 14 years.
During his time in charge, Watford achieved a best-ever Premier League finish of 11th place and also reached the FA Cup final before losing 6-0 to Manchester City.
They were, however, bottom of the top flight when Watford decided to part company with him, and bring back Quique Sanchez Flores for a second spell in charge, a decision which backfired as he only lasted three months.
Gracia will immediately begin working with the Hornets squad before his first game back in charge against Sheffield United at Bramall Lane on Saturday, 18 October.