The 24-year-old left-sided player has been drafted in by Rams boss Nigel Clough following an hamstring injury to leading goalscorer Jamie Ward against Crystal Palace last Friday.
Forsyth is expected to be eligible to make his County debut at Cardiff on Tuesday.
Manager Nigel Clough said: "Craig is someone we've been aware of for a while and we've been impressed whenever we've seen him in action, so it'll be good to have a look at him a little more closely.
"The injuries we've picked up of late have obviously been frustrating, but it's presented us with a chance to bring Craig in.
"We've got options up front, despite Jamie Ward's injury, with Conor Sammon, Chris Martin, Michael Jacobs and Mason Bennett, but we've been left a little bit short in midfield so Craig's arrival certainly strengthens that area."
Scot Forsyth, who joined Watford from Dundee in June 2011, scored five goals in 22 appearances last season, but has found his first-team opportunities limited this term.
He has made two league appearances and featured twice in the Capital One Cup this campaign. He also spent two months on loan at Bradford City earlier in the season, making six appearances and scoring once.
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