Pearson is Watford’s third manager of the season already following the dismissals of Javi Gracia four games into the season and Quique Sanchez Flores last week.
Watford, who were FA Cup finalists last season, have won just one Premier League game this season and sit bottom of the pile.
The Hornets have scored just nine league goals this season and have already lost nine times with five draws.
Pearson comes to the Vicarage stadium with the experience of helping Leicester City avoid the drop back in the 2014/2015 season.
Having led the Foxes to promotion, Pearson kept them in the league despite Leicester City sitting bottom of the table and seven points from safety in early April.
The 56-year-old’s last managerial job was at Belgium side OH Leuven, where he was sacked in February 2019.
Watford’s U-23 coach Hayden Mullins will take charge of Saturday’s home game against Crystal Palace but Pearson will be in the dugout for the trip to Liverpool next weekend.
"Nigel is an impressive coach and comes with all of the experience and success we believe can have a very positive impact on our season," Watford chairman and CEO Scott Duxbury said.
"It's been a pleasure spending time listening to the passion with which he talks about the game.
"His enthusiasm, organisation and motivation will I'm certain prove essential in driving the team forwards and upwards over the coming weeks and months."
