Rennes' French midfielder Abdoulaye Doucoure (L) vies with Caen's French defender Damien Da Silva during the French L1 football match Rennes against Caen on December 11, 2015 at the Roazhon park stadium in Rennes, western France
"The opportunity to sign Abdoulaye Doucouré now was one we wanted to act upon, given our long-standing interest in the player," CEO Scott Duxbury told the club's website.
Doucoure made his debut for the Ligue 1 club in 2012 having come through their youth system.
The France U21 international has signed a four-and-a-half year deal with the Hornets but will go on a six-month loan to Granada CF, who are also owned by the Pozzo family.
Watford have also signed 18-year-old forward Adalberto Penaranda from Udinese, another Pozzo club. He was on loan to Granada, and will stay on loan at the Pozzo-owned Spanish club until the end of the season when he will link up with Watford.