Gomes, 35, was named the Hornets' Player of the Season in 2015/2016 and also collected the award voted by his team-mates.
The Brazilian has made 83 appearances since moving to Vicarage Road from Tottenham in May 2014, having also enjoyed a successful spell in Holland with PSV Eindhoven.
A statement on Watford's official website read: " Goalkeeper Heurelho Gomes has agreed terms on an improved contract offer from the Hornets
"The Brazilian, whose deal runs until 2018, has been rewarded for his fine performances in the Watford goal over the past two years."
Watford have been busy reshaping the squad for life after Quique Sanchez Flores, who kept the Hertfordshire club up in his first season and also reached the semi-finals of the FA Cup.
New manger Walter Mazzarri has brought in Belgium international Christian Kabasele, Jerome Sinclair from Liverpool and forward Isaac Success, while captain Troy Deeney has ended speculation about his future by signing a new five-year contract.
Watford also confirmed on Monday evening midfielder Jose Manuel Jurado had joined Espanyol
The Spaniard, 30, signed for the Hornets from Spartak Moscow in July 2015, and made 30 appearances last season.
Source : PA
Source: PA