Dyche's dismissal was expected after new owner Giampaolo Pozzo revealed on Italian television that he had a "verbal agreement" for Gianfranco Zola to take over as Hornets boss.
Dyche guided Watford to 11th in the Championship last season, their best league finish for four years, but his one year in charge has come to an end following the club's takeover by the Pozzo family.
Zola has been out of a job since he was sacked by West Ham shortly after the end of the 2009/10 season, when the Hammers narrowly avoided relegation from the Premier League.
Appearing on Sky Italia, Pozzo said: " We've always been convinced about Zola, we've known him for a long time.
"He is a serious and capable technician. With (the right) opportunities and resources he can do well.
"We are on the right path and hence, I believe he will be our new coach. We have a verbal agreement. My son will be in London on Monday and there should be no problem."
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