Capoue has been targeted by several clubs ever since Watford got relegated from the Premier League, particularly by Lyon, who are keen to add to their midfield options, as well as Valencia, who are led by former Watford manager Javi Gracia.
Capoue joined Watford in 2015, and is still seen as a very valuable asset by the Hornets, playing in 11 Championship games this season.
Villarreal, managed by former Arsenal manager Unai Emery, have started very well in La Liga this season, being in fourth and in the UEFA Champions League qualification places.
They are keen to strengthen their squad even further according to Marca, but are mainly considering a loan deal for Capoue.
However, Watford are keen on a permanent transfer for the Frenchman, wanting to get his huge wages out of the club, as they opt to focus on younger players for the future.
Villarreal's interest mainly comes as a result of a serious injury to crucial first-team player Vincente Iborra, with the 32-year-old suffering a ruptured anterior cruciate ligament against Real Betis, leading to him being ruled out for the rest of the season.
32-year-old Capoue has a market value of €4 million according to transfermarkt, a significant amount of money for a player that is 32 years old and is struggling for form.