The 25-year-old arrives at Vicarage Road from Italian club Udinese, which is also owned by the Pozzo family.
Ighalo spent most of the last two seasons playing in Spain for Granada on loan, scoring seven goals in 44 games.
He is the ninth new recruit by Watford this summer, following Heurelho Gomes, Gabriel Tamas, Lloyd Dyer, Craig Cathcart, Matej Vydra, Daniel Toszer, Juan Carlos Paredes and Keith Andrews.
They begin the new Championship campaign with a home game against Bolton on Saturday, 9 August, having finished 13th last term, 12 points outside the play-off places.
Watford have signed Nigerian striker Odion Ighalo on a season-long loan.