The 25-year-old, who has spent the last season and a half on loan at Baggies' rivals Aston Villa, is expected to become the club's first signing of the summer this week after completing a medical tonight.
His arrival will pave the way for Ben Foster’s shock exit, which will end a seven-year association with the Baggies.
Watford are close to agreeing a £2.5m fee with the Baggies for the long-serving number one, as the club he has previously spent two seasons on loan at offer him a route back into the Premier League.
Johnstone came through United’s academy ranks and has been on loan at Oldham, Scunthorpe, Walsall, Yeovil, Doncaster, Preston, and Villa.
Johnstone has never made a first-team appearance for United and is keen to leave Old Trafford in search of first team football.
He has been consistently impressive in the Championship over the past 18 months and kept 22 clean sheets for Villa last season.
Villa boss Steve Bruce wanted to sign him permanently but the club’s cash crisis has made it impossible.
The Baggies have been interested in Johnstone for while, and tried to sign him last summer before he rejoined Villa on loan again.
His exit from Old Trafford has been approved because United are nearing a deal for Stoke City’s Lee Grant, who will join as third-choice keeper behind David de Gea and Sergio Romero.
Joel Pereira, who was also ahead of Johnstone in the United pecking order, will be sent out on loan.
Foster publicly committed his future to the club just two months ago, but it’s believed the lure of Premier League football and a possible reunion with the Hornets has turned his head.
The 35-year-old refused to go on Darren Moore’s pre-season training camp to Portugal last week, earning himself a club fine.