Quique Sanchez was sacked by the Hornets earlier this week.
Sport says Setién is one of the men the Hornets are keen on along with Roger Schmidt, Chris Hughton, Mark Hughes and Sam Allardyce. Hayden Mullins is currently in charge as they look for a long-term solution.
Setién has been out of work since leaving Betis at the end of last season. He had previously coached Las Palmas, among others. He has been linked with a return to Betis, curiously, with his replacement Rubi struggling before recent wins against Valencia and Mallorca.
If Watford's interest moves forward, he would become the third Spanish coach to manage them this season. They began the campaign with Javi Gracia, who was replaced by Flores, who has since been sacked himself.