The 19-year-old becomes Walter Mazzarri’s first signing ahead of the new Premier League season after the Hornets agreed a £4million compensation for the player.
Sinclair will officially sign once his contract with the Reds have officially expired, and will be a Watford player on 1 July.
Sinclair pens five-year deal with Hornets
He is still the youngest player to represent Liverpool aged 16 years and six days, when he appeared for the Reds in a League Cup match against West Bromwich Albion back in 2012.
Sinclair went on to make five appearances thereafter, and he scored on his first start for the club in the FA Cup clash with Exeter City last season.
Sinclair, who took to Twitter to announce the signing, said: “For me it’s an exciting new chapter and I can’t wait to get started with Watford.”
The youngster was highly thought of at Anfield, however, the lack of game time forced Sinclair to make the move to a club which would provide that much-needed time playing.
At Under-16 and Under-17 level the forward represented England, and he spent some time with Wigan Athletic, who were in League One last season, and he even played against his new teammates last season.
Youngster will bring a lot to the side
Because the forward is under the age of 24, Liverpool were entitled to compensation, and a deal was settled between the two clubs to allow Sinclair to officially sign when his contract expires.
The Birmingham-born youngster was part of the West Brom Academy growing up before making the move to the Reds, after he impressed at the age of 15.
He will offer pace, strength and a goal-scoring prowess, and Mazzarri will be hoping that the youngster is the first of a few new faces to come through the Vicarage Road doors this summer.
Watford begin their season away to Southampton on the opening day, but pre-season preparations are set to get underway within the next week.