But Rams boss Nigel Clough hopes to have the 24-year-old back at Pride Park next season - on a permanent deal.
Forsyth's loan was extended at the beginning of April until the end of the season but, ahead of the final round of Championship matches at the weekend, Watford have activated the 24-hour recall clause in the deal.
It means the Scot will miss Derby's last game of the campaign at home to Millwall.
For now, Forsyth is back at Vicarage Road and part of a Hornets squad that could be about to embark on a play-off campaign.
Gianfranco Zola's men are a point behind second-placed Hull who host champions Cardiff on Saturday, while Watford end the season at home to Leeds.
Clough told the Derby Telegraph: "Craig has been brilliant for us and it will not affect our intention to try to sign him permanently in the summer once Watford's season is over.
"We are very much in Watford's hands but we have started preliminary negotiations and we'll see how they go.
"I think he is surplus to requirements there. He hasn't been involved very much this season and I think he would like to come here, so we have got a good chance."
Forsyth, who has a year left on his contract at Watford, made 10 appearances for Derby in midfield and at left-back.