The former Manchester United trainee had been training with the Hornets since August following his release from Doncaster earlier in the summer.
The 22-year-old was a mainstay in Rovers' League One title-winning side last season, making 49 appearances for the club.
He told Watford's official website: "It's good to get things done as it's been a long summer. I felt this move was right for me and hopefully I can kick on.
"This is a good place to be. Everybody here is very down to earth, they all work hard and it seems a very good family-orientated club.
"I've played a lot of games at a young age but to work with the likes of Alec Chamberlain and Manuel Almunia, I think it's a forward step to be able to get that experience from them. I think their help can take me onto the next level.
"Competition for places is always good, so I just want to work hard as much as I can and then go from there."