De Bruyne was forced off late in City's 0-0 draw at Crystal Palace after suffering a nasty challenge from Jason Puncheon, who was booked for the action.
The Belgium international looked at first glance to have sustained a serious injury, but the club's worries were eased after the game when it emerged he had not suffered any lasting damage.
David Silva also returns to the fold for Pep Guardiola's men after sitting out Sunday's draw, a result that ended City's record-breaking run of 18 straight victories in the Premier League.
While De Bruyne received positive news from the club's medical team, Gabriel Jesus was not so fortunate.
A knee ligament tear suffered at Selhurst Park will keep the Brazilian out for at least two months, meaning that Sergio Aguero predictably returns to the starting line-up for Tuesday's encounter.
Manchester City: Ederson, Walker, Otamendi, Stones, Delph, Fernandinho, Silva, De Bruyne, Sterling, Sane, Aguero.
Substitutes: Bravo, Bernardo, Danilo, Mangala, Gundogan, Yaya Toure, Zinchenko
Watford: Gomes; Janmaat, Wagué, Kabasele, Zeegelaar; Doucouré, Watson; Carrillo, Capoue, Richarlison; Gray.
Substitutes: Karnezis, Prodl, Mariappa, Holebas, Cleverley, Pereyra, Sinclair.