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