The England international put in a man of the match display in the 5-0 FA Cup battering of Southampton at the weekend, netting a hat-trick against his former club after Danny Welbeck had scored twice.
However, Walcott was only among the substitutes against the Hornets at Emirates Stadium on Tuesday and only came on at half-time when Arsenal were 2-0 down.
Wenger, though, says he has no regrets over his decision because Walcott is still working towards full fitness having spent time on the sidelines with a calf problem.
"Walcott played in the second half," Wenger responded when asked about Walcott's absence from the starting XI.
"If you look well at his history, he has not played for five and a half weeks. He was stiff still Monday. I kept him out of training Monday.
"We have three games this week. We know well, we do not think we are completely stupid in the way we make decisions.
"I think it was a good, normal decision."
Younes Kaboul and Troy Deeney gave Watford the three points at the Emirates Stadium, despite Alex Iwobi's goal for the Gunners.
Wenger's side are now nine points behind Chelsea, who they face at Stamford Bridge on Saturday.