Gracia's departure was announced on Saturday with the Hornets bottom of the Premier League table after taking one point from four games.
The 49-year-old took charge of the club in the 2018-19 season and led them to the FA Cup finals which they lost to Manchester City in the final.
Chairman and CEO Scott Duxbury told the club's website: "Javi has represented Watford with great dignity and will always be deserving of our fullest respect for his achievements".
Watford have had 10 bosses since Malky Mackay's departure in June 2011, with Walter Mazzarri and Marco Silva among their recent coaches.
Watford then narrowly missed a chance to play in the Europa League this season giving Wolverhampton the opportunity to play in the elite competition last season.
But in a dramatic twist, around 20 minutes later, former manager Flores was confirmed as new Vicarage Road boss.
Watford trust their set-up and system, although there is some irony that they have now gone back to a manager they sacked previously in Quique Sanchez Flores.
Since leaving Watford in 2016, Sánchez Flores has managed Espanyol in Spain and Shanghai Shenhua in China. He becomes the first Premier League manager to be sacked this season.
Watford have parted ways with coach Javi Gracia after picking up just one point from their first four Premier League games.