The Spanish forward joins the Hornets for a fee of €13 million (£11m/$15m) plus an additional €4m (£3.5/$4.7m) in performance-related incentives.
The 24-year-old put pen to paper on a five-year contract with the Premier League side, while the Blaugrana made sure to include a clause that will see them receive a percentage of any funds received from a future transfer.
“Our ambition to succeed and grow in the Premier League remains as strong as ever.”
A versatile forward, Deulofeu scored on his debut with Watford after arriving on loan in January and went on to make seven appearances for the club.
Raised in Barcelona's world famous La Masia academy, the Spain and Catalonia international made his first-team debut for the Liga giants in August 2011.
Having missed out on the call-up for Julen Lopetegui's Spain side for Russia 2018, Watford will be keen to see their latest aquisition hit the ground running after a full summer of rest ahead of the 2018-19 Premier League season.