The 32-year-old, who joined the Hornets in 2001, is out of contract in the summer but Watford announced on Monday they would meet with Doyley to discuss his future following the completion of his injury rehabilitation.
The full-back underwent neck surgery in May and the decision by the newly-promoted Premier League side means the Jamaica international will remain at the club until at least September.
A statement on Watford’s official website said: “Hornets’ long-serving defender Lloyd Doyley will remain at the club until at least September as he continues his rehabilitation from a neck injury.
“Doyley is out of contract this summer, however he and the club will discuss his future only when his return to full fitness has been confirmed.
“The full-back underwent successful neck surgery in May and is working under close guidance from the Hornets’ medical team during his recovery.”
Doyley has made more than 400 appearances for Watford after graduating from the club’s academy.