Prodl, 27, has signed a five-year contract at the newly promoted Premier League club, having impressed in 25 appearances for Bremen this past season.
Announcing the news on their official website, Watford claim they “won the race to sign the central defender amid strong interest from other Premier League sides”.
Prodl signs for an undisclosed fee and began his career with Austrian side Sturm Graz, before moving to Werder Bremen in 2008.
Prodl appeared in both the Champions League and the Europa League during his seven years at the Weserstadion, as well as winning the German Cup in 2009.
He is an established Austrian International with 49 caps and represented his country at the European Championships in 2008.