The 24-year-old, who started his youth career with Tottenham Hotspur, joined Fulham in 2015 after successive spells at Brentford, Millwall, Middlesbrough, and Bristol City.
He made 34 appearances for the Whites last season and was one of the key players for his side.
Fulham's Ryan Fredericks in action with Aston Villa's Jordan Amavi
The report states that he “has interested the Hertfordshire side this transfer window”, while he himself is keen to make a move to the Premier League side.
Fulham have sold left back Scott Malone to Huddersfield Town this summer already and will be reluctant to lose their right-back as well.
The Cottagers reached the Championship play-offs semi-finals last season, and will be looking for promotion this term as well.
If Watford comes up with an acceptable offer it will be hard for Fredericks or for the club to reject it straightaway.
Fulham have Denis Odoi in their ranks who can step up in case Fredericks leaves the club. It remains to be seen whether Watford step up their interest with a concrete offer in the coming days.
Fulham's Ryan Fredericks in action with Derby County's Johnny Russell