Deeney's brace in the 4-0 win at Birmingham takes his tally to 13 for the season and the forward, who is out of contract in the summer, was recently linked with a move to Premier League side Aston Villa.
But Zola, despite admitting he could play at a higher level, insists Deeney is going nowhere.
"We want to keep him, I believe he wants to stay so we're working on getting him signed," the Italian said.
"He's 24 years old and a player who has been improving game by game. I don't see why he can't play at a different level."
Birmingham-born Deeney, a boyhood Blues fan, scored twice either side of a solo effort from man of the match Ikechi Anya, who also set up Deeney for both his goals.
Almen Abdi then fired home a fourth late on as the Hornets moved up one place to third in the npower Championship table.
"It was a very good result, a good performance," Zola said.
"I think there were some spells in the game which we were really good, I rate it one of the best performances considering the (injury) difficulties we had. But I do think we've played some better games than this."
- Sports & Recreation