The 30-year-old has penned a two-year deal with Glory, joining Josh Risdon as new signings at the rebuilding A-League Men club.
O'Neill spent the first four years of his A-League career at Glory before moving to Sydney FC.
But it was his most recent stint in Perth - in 2021/22 - that left fans disillusioned.
O'Neill had signed on for a three-year deal and was even made skipper, but he left after just one year so he could move to the Newcastle Jets.
The former Socceroos midfielder is now keen to win back the hearts of Glory fans.
"I really want to thank the club for allowing myself and my family the chance to come home, represent the club and play football, which is something I never thought would be possible again," O'Neill said in a statement.
"I appreciate that my previous spell at the club did not end well and that my actions were viewed negatively from the outside by some of our members and fans.
"I acknowledge and understand that perception and am keenly aware of the need to rebuild my relationship with those members and fans.
"The best way for me to do that is via my actions on and off the field and I will be doing everything I can to help bring success back to Perth Glory."
Glory finished with the wooden spoon last season and are embarking on a huge list overhaul.
Darryl Lachman, Mark Beevers, Aleksandar Susnjar, Bruce Kamau, Antonis Martis, Jayden Gorman, Salim Khelifi and Jaylan Pearman have all been let go.
Stefan Colakovski and John Koutroumbis opted to pursue opportunities overseas, while Josh Rawlins returned to his parent club FC Utrecht at the end of his loan deal.
Earlier this week, it was announced English Championship club Queens Park Rangers had bought rising star Daniel Bennie for an undisclosed fee.
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