The former Liverpool attacker has been at Watford's academy since July 2015, after he was appointed as the Under-21 coach.
Kewell then stepped up to resume the Under-23's coaching job since the start of the current campaign.
However, only two wins since September and heavy losses at the hands of Cardiff and Ipswich, including Monday's (Tuesday AEST) 4-1 defeat to Bristol City, have seen the former Socceroos star move on.
“Regretfully myself and Watford under-23s have parted ways,” Kewell said in a statement on his official Twitter account.
“Unfortunately results haven’t been on my side however I’m extremely proud as three of my players have made their debut for the first team and five others have been in the squad.
“I’d like to thank Watford for the opportunity and wish the club and my players all the best for the future. I’m looking forward to my next challenge.”