Ivic will replace Nigel Pearson, who was dismissed with two games to go in the English Premier League last season.
Watford’s decision to fire Pearson failed to inspire the Hornets to Premier League survival as the Vicarage Road outfit lost their final two games of the season and dropped down to the Championship.
Ivic will be Watford’s fourth permanent manager in a year, with Javi Gracia, Quique Sanchez Flores and Pearson all dismissed in the last 12 months.
Ivic was previously in charge of Israeli side Maccabi Tel Aviv, where he won two league titles before departing last month. He also won the Greek cup whiles in charge of PAOK in the 2016/2017 season.
"First of all, from the beginning I have a big expectation of myself and of my coaching staff," Ivic told the club's website.
"It's my first time in England and I need to adapt as fast as possible, to do the best for the club is very important to me."
"I've worked with my coaching staff for three years, so I know that we will ask the most from ourselves so we can help the players to achieve the club's goals."
As a player, the 43-year-old featured eight times for the Serbia and Montenegro national team.
