The 21-year-old has moved to Vicarage Road on a permanent deal and has signed a three-year-deal with the club, per Sky Sports.
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Bravo spent the second half of last season on loan at Las Palmas in Spain's second division, where he made 19 appearances but did not score a single goal.
For Udinese, the Spaniard has netted four times during his time at the club across two seasons.
Group Technical Director Gian Luca Nani said: "Iker is a promising young talent.
“His development at Real Madrid, Bayer Leverkusen and with the Spanish national teams speaks for itself.
“He is a versatile attacking player with an excellent technical quality.
“We are confident he will be a valuable addition to the squad and bring new attacking options to the team.”