The Hornets have agreed a deal with stadium construction specialists GL Events which will see work begin immediately and provide an extra 3,000 seats for home supporters, with further possibility for that to be increased in the future.
The announcement comes as Vicarage Road is also being developed in the South West corner of the stadium to provide extra hospitality.
Watford, who boast around 12,000 season ticket holders, have managed attendances of more than 16,000 in three of their four Championship home fixtures to date this term.
Chief executive Scott Duxbury told the club's official website: "We said at last season's fans' forum that once attendances were regularly reaching and exceeding 15,000 there would be a clear mandate to build the East Stand - and we're delighted to be delivering on that now.
"Working with the expertise of GL Events, I am certain the East Stand will be a construction of which we can all be very proud - and will finally complete the stadium."
He added: "Right across the club we are striving for continual improvement and stadium development is key to the club's continual progress."