The Watford side were playing Italian team Latina Calcio in a Wojtyla Cup game in Rome on Wednesday when they were taken off by coach Dave Hughes following an incident.
A source from the game told Eurosport: "From the opening whistle the Italians started on the black players from Watford.
"Tackles were flying everywhere and as players got up they would call them negros.
"It continued after a Watford player made a tackle and the Italian player retaliated and was sent off. The referee let Latina sub the player and continue with 11 men.
"As the teams were in the tunnel at half-time the player that was sent off then tried to hit the Watford player with his boot. It kicked off again.
"After repeated comments in the first 10 minutes of the second half Dave Hughes removed his team and abandoned the match."
The club and Kick It Out are both now trying to find out the full facts behind the incident - a video of which has appeared online.
A Kick It Out spokesman said: "We have been made aware of an incident, we have been in touch with the club and they and we are now looking into exactly what happened."