The 23-year-old, who previously enjoyed a spell at Everton, will spend the rest of the campaign at Vicarage Road.
Watford will also cover the Spaniard’s salary and he is in line for a potential additional payment of around £1million.
Deulofeu’s game time has been limited this season, managing just five appearances and scoring 1 goal for Barca.
Barcelona confirmed the news in a statement through their official club page.
“FC Barcelona and Watford Football Club reach an agreement on the loan of Gerard Deulofeu until 30 June 2018,” the statement reads.
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