The 28-year-old winger left Vicarage Road at the end of his contract earlier this summer and teams back up with Bantams boss Phil Parkinson who he played under at Colchester and Hull.
Parkinson told the club's official website: "Mark will be a wonderful addition to the squad.
"He has played most of his career at Championship level and we feel he'll bring a lot of ability to the football club."
Yeates made 30 appearances, scoring four goals for Watford last season as Gianfranco Zola's side reached the Championship play-off final.
The Irishman, who began his career at Tottenham in 2002, first worked with Parkinson at Colchester after signing in 2007 and after a loan spell at Hull returned to the U's and moved on to Middlesbrough and then Sheffield United.
Yeates' arrival follows 24 hours after defender Jason Kennedy completed his move to Valley Parade from Rochdale.