Chinese outfit Guangzhou Evergrande had originally sent the Italian to Vicarage Road for a season-long loan spell, only for Diamanti to struggle to break into the first XI under Quique Sanchez Flores.
Former West Ham United attacking midfielder Diamanti made just three appearances for the Hornets, all of which came off the bench.
Watford confirmed via Twitter that Diamanti was on the move back to his homeland.
OFFICIAL: Midfielder Alessandro Diamanti joins @Atalanta_BC on loan from #watfordfc until the end of the season. pic.twitter.com/AoZA8FbaEq
— Watford FC (@WatfordFC) January 13, 2016