Garcia was appointed less than a month ago, taking charge of his first game immediately following the international break.
A 1-0 loss at Charlton was followed with the former Brighton manager, who was wanted by Leeds to replace Dave Hockaday, admitted to hospital with chest pains.
A prolonged stay in hospital resulted in the Spaniard missing two games, although he was at Ewood Park on Saturday to see the Hornets lose a two-goal lead over Blackburn, leaving Lancashire with just a point.
His return to matchday action hinted at a potential return to coaching duties in the next few days, but it has been announced on the official Watford website that Garcia has stepped down from the role, with first-team coach Billy McKinlay taking head coach duties with immediate effect.
Former Scotland international McKinlay made a name for himself as a player with Dundee United, before spells with Blackburn and Leicester led a way into coaching with Fulham. An almost six-year stay at Craven Cottage saw him manage the first-team on a caretaker basis twice, losing to Everton and defeating Liverpool in the absence of Martin Jol. He has also worked with the Northern Ireland international side since 2010.
He arrival as Hornets first-team coach was confirmed on September 26, and Garcia revealed that he chose McKinlay knowing that he may not have been able to return to the dugout.
The former Barcelona midfielder said: "I was closely involved with the appointment of Billy McKinlay, because I was aware that I may not be able to return.
“I always wanted an experienced British coach within our set-up, because it’s important to have that mix of cultures and experience with this squad.”
Garcia went on to express his gratitude to Watford, despite his short stay in Hertfordshire.
“I would like to thank Watford’s fans for their kindness during my time here at the club. I will be hoping to see you all as a Premier League club next season.”
McKinlay will lead the Hornets out for the first time on Tuesday night, with Brentford traveling to Vicarage Road for a tough Championship encounter.