The former Wallabies rake, who has played 21 Tests, signed a one-year deal to push his case for national selection ahead of the 2024 Rugby World Cup in France.
Latu had been linked to a return with the Waratahs after being let go by Stade Francais after three seasons.
The French giants were unhappy with his on-field discipline - given red cards with one resulting in an 11-week ban for a reckless tackle.
The 29-year-old has also been caught drink-driving twice - once in France and once in Australia during his six years with NSW.
Latu played under Darren Coleman with NSW Country Eagles in the National Rugby Championship, with the Waratahs coach describing him as one of the most damaging hookers in world rugby.
"I've coached Tolu twice before in NRC and he was always a positive team member," Coleman said.
"We will be working hard to iron out some of his weaknesses and I believe he'll not only get swept up in our positive team culture but add to it over time.
"He's a proud Waratah champion who is very motivated to play a part in getting the organisation back to its winning ways."
Latu said he was excited to return home.
"I'm so fortunate to be given the opportunity to represent the Waratahs once again - I can't wait to get started," he said.
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