On 22 April 2014 he was the lone goalscorer in Leicester's 1–0 win over Bolton Wanderers, making them the champions of the 2013–14 Championship.
Despite being offered an extension to his contract at Leicester, Dyer signed for Championship club Watford on a three-year deal on 12 June 2014. He made his debut on the opening day of the 2014–15 season, replacing Daniel Pudil in the 83rd minute of a 3–0 home win against Bolton Wanderers. Three days later, on 12 August, he scored the only goal in Watford's 1–0 League Cup victory at Stevenage. On 19 August, Dyer scored his first league goal for Watford in a 2–0 win at Rotherham United, and following his goal appeared to shout abuse towards the bench at manager Giuseppe Sannino. On 2 February 2016, Dyer was freed from the remainder of his contract with Watford.