Williams, 38, had said in September he was taking a break from the game, but will now be suiting up for his 19th season.
The Hurricanes said Williams will earn a base salary of $700,000 for the rest of the season, with the chance to earn an additional $1.3 million in bonuses.
"We've been in frequent contact with Justin over the last few months regarding his status," said team president and general manager Don Waddell. "We're thrilled that he has decided to return to playing, and we're confident that adding him to our group will help us both on and off the ice."
The right winger is a three-time Stanley Cup champion, once with the Hurricanes and twice with the Los Angeles Kings. He won the Conn Smythe Trophy as playoff MVP with the Kings in 2014, when he had nine goals and 16 assists in 26 postseason games.
Williams had 23 goals and 30 assists last season for Carolina, with whom he has had two stints -- 2003-2009 and 2017-2019.
He has scored 312 goals and added 474 assists in 1,244 career games.
"There is no adjustment because we know what he is,'' Hurricanes coach Rod Brind'Amour said. "He's been here. He's a Hurricane. ... It will be an adjustment for him to get back up to speed. That's the whole thing. He's been out a long time. But I've said many times that we'll welcome him back.''
His return to the Hurricanes had been speculated for a while, and seemed certain when he was spotted chatting with team owner Tom Dundon at Tuesday night's game against the Flyers, a 5-4 overtime victory.
The Associated Press contributed to this report.