The 27-year-old Nigerian joined the Hornets from Udinese in July 2014 and helped them win promotion to the Premier League in 2014-15.
He scored 17 goals in 42 games last season as the Vicarage Road side finished 13th in the top flight and reached the FA Cup semi-final.
Walter Mazzarri's men start the new campaign with a trip to Southampton on Saturday.
Watford striker Odion Ighalo has signed a new five-year deal.