The 74-year-old is the Hornet’s third manager of the 2021/2022 season and he comes in as a replacement for Claudio Ranieri who was sacked after only three months in charge on Monday.
Watford dismissed Xisco Munoz earlier in the season with the club 14th on the Premier League table but a 3-0 home defeat to relegation rivals Norwich City last weekend left them in 19th place.
Hodgson was unattached after leaving Crystal Palace at the end of the 2020/2021 season.
An official club statement said: "Watford FC is delighted to confirm the appointment of Roy Hodgson as the club’s manager.
"The ex-England national team boss is joined by his trusted assistant Ray Lewington, who managed the Hornets so admirably from 2002 until 2005.
"Best known for leading the Three Lions during a four-year spell which took in Euro 2012, World Cup 2014 and Euro 2016, Hodgson has also managed extensively at club level in England and across the world."
"Hodgson and Lewington begin preparations immediately for Watford’s next Premier League fixture; away to Burnley on Saturday February 5.
"Welcome to Watford, Roy. And welcome back, Ray!"
Hodgson is the oldest ever Premier League manager.
