The 25-year-old played 39 games on loan at Portsmouth during the 2010-11 season, and Dickinson has admitted that he is excited to return to Fratton Park.
Dickinson said: "It's an exciting move. I found out on Friday that Portsmouth were interested and it was a no-brainer for me.
"I wasn't getting the chance at Watford and I needed games."
Dickinson has also had loan spells at Leeds, Blackpool and Barnsley.