The Friulani announced the deal with a statement on their official website on Saturday.
Caballero scored 21 goals in 56 games for Spanish second division side Girona over the past two seasons.
The statement confirms the 25-year-old will initially go to Watford on loan.
The Pozzo family own Udinese, Watford and Spanish side Granada, so regularly move players around between the three clubs.
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