The 26-year-old joined the Hornets as a free agent following the expiry of his contract with French Ligue 1 club Monaco.
Diatta, who can operate on either flank, brings Premier League and European experience to Vicarage Road. He previously featured for Club Brugge in Belgium before moving to Monaco, and has been a regular member of the Senegal national team setup.
The deal provides Watford with defensive reinforcement for the remainder of the 2026/27 Championship campaign as they look to strengthen their squad during the season.
Diatta will now link up with his new teammates and begin preparations for life in the English second tier.