The Italian takes over from Quique Sanchez Flores, who left Vicarage Road after just one year in charge, on a three-year deal.
Spaniard Flores led the side to a 13th-placed finish in their first season back in the Premier League since 2007 and also reached the FA Cup semi-finals, where they lost to Crystal Palace.
Mazzarri has also managed Fiorentina, Reggina and Napoli in a 15-year coaching career, but has been without a club since he left the San Siro in 2014.
“Walter has been the target of a number of approaches for his services, so we’re delighted to secure him as head coach here at Watford,” Watford chief executive Scott Duxbury told the club’s official website.
“We’re thoroughly looking forward to working with such a highly-regarded coach, with the progress and development of the club always remaining the highest priority.”
Mazzarri becomes the seventh manager appointed by Watford since the Pozzo family, who also own Italian side Udinese and Spanish team Granada, bought the club in June 2012.
The 54-year-old has won one major trophy as a coach, the 2012 Italian Cup with Napoli, who he also led to a runner-up finish in Serie A in 2013.