The 23-year-old re-joined the Catalan giants from Premier League side Everton at the start of the season but has struggled for game time in what is a FIFA World Cup year.
As such, the Spaniard has looked to earn more game time leading up to the Russia 2018 showpiece in June, resulting in his short-term deal with the Hornets.
"FC Barcelona and Watford Football Club reach an agreement on the loan of Gerard Deulofeu until 30 June 2018. The agreement sees the English team cover his salary and a potential add-on of one million euros," said a statement on Barcelona's official site.
Watford, speaking through a post on their own website, said: "Watford FC is delighted to confirm the loan signing of forward Gerard Deulofeu from FC Barcelona until the end of the season.
"Deulofeu is eligible to play a part against Stoke City on Wednesday evening having completed his move before Tuesday's midday deadline."