The Championship outfit parted company with Sean Dyche on Monday, despite him having led the club to their highest finish in five years last season.
|33/1||Watford are 33/1 to win the 2012-13 Championship with PaddyPower|
And the Hertfordshire outfit have now confirmed his appointment, a move which technical director Gianluca Nani has hailed.
"Everyone knows how Gianfranco Zola likes football to be played," he told the club's official website.
"I think Watford's fans can expect an exciting and attacking style from his team. Gianfranco represents this project perfectly."
Zola has been out of work since his sacking by West Ham in 2010 following a season in which they finished just five points above the Premier League relegation zone.