The La Liga leaders said Deulofeu will join Watford until June 30, with the English team covering his salary as well as agreeing to pay a potential add-on of one million euros ($1.2m, £880,000).
Watford, who are 10th in the Premier League, last week appointed Spaniard Javi Gracia as their new coach after sacking Marco Silva.
Deulofeu, a 23-year-old Spanish international, has already played in England, featuring for Everton on loan in 2013-14 before the Merseyside club signed him permanently in 2015.
However, they loaned him to AC Milan in January last year before Barcelona activated a buy-back clause in his contract to bring him back to the Camp Nou last summer.
He has not been a regular this season, though, scoring twice in 17 appearances.