They bought the freehold in January of that year only to sell it to a property speculator six months later - in the midst of a financial crisis.
The demise of ITV digital combined with a disastrous season of over-spending under Gianluca Vialli left Watford in serious danger of going out of business.
But cash from the stadium sale and a wage deferral agreed with their playing squad meant administration was avoided.
The club's financial plight has since improved with the help of millionaire salad-growers Jimmy and Vincent Russo, who have joined a restructured board.
The 'Let's Buy Back The Vic' campaign was started in May 2003 with all pledged cash going into a fund. They need £4million for a deposit on the freehold which will ultimately cost around £6m.
In March, the club raised £5.25m through loans and a share issue, much of which will be put towards the stadium purchase.
John, who remains life president after a 25-year association with the club, has already made a major contribution by donating his £120,000 fee from Sky TV's 'Are You Ready For Love' advert to the fund.
The concert can be expected to far exceed that figure.
Chairman Graham Simpson said: "This is absolutely fantastic news. It not only demonstrates Elton's continued affection for the club, but will give the Watford public a chance to see one of the greatest live performers in the world."
Demand for tickets is likely to be strong, but Watford season-ticket holders will be granted a preferential period before any tickets are offered to the general public.
Simpson added: "We're always looking for ways to reward our most loyal fans - and this is a perfect opportunity."
A supporter since childhood, John is an immensely popular figure among Watford fans who associate him with the club's glory years under Graham Taylor.
He was famously pictured crying in the stands when Taylor's team reached the FA Cup final in 1984.
Watford mayor Dorothy Thornhill added: "This shows his support for both the current management of the club and his affection for the town."
