The 28-year-old, whose stay at Vicarage Road is now extended until 2021, has made 84 appearances for the club since joining from Blackpool three years ago.
Cathcart struggled with a hernia injury last season and only featured in 15 Premier League games.
However, new manager Marco Silva has opted to tie down the long-term future of the experienced international.
Cathcart made his Northern Ireland debut against Slovenia in 2010 and has won 33 caps.
Watford also signed midfielder Will Hughes from Championship side Derby County last weekend as Silva prepares his side before they host Liverpool in the opening Premier League fixture on 12 August.
Northern Ireland defender Craig Cathcart has penned a new four-year contract with Watford.