Doucoure enjoyed a fine campaign in the Premier League last season, and the Mali international's return of seven goals and three assists from 37 outings resulted in interest from other clubs in the top flight.
However, the Hornets have moved to secure the services of one of their key players, with Doucoure committing his future to the club until 2023.
Chairman and CEO Scott Duxbury told the club's official website: "I am delighted that Abdoulaye has shown his commitment to what we are trying to achieve by signing a new long-term contract with Watford football club.
"It has become perfectly clear that our ambitions as a club match Abdoulaye's ambitions as a player, and we are looking forward to continuing to work together to reach our goals."
Watford get their new Premier League season underway with a home fixture against Brighton & Hove Albion on August 11.