The England international with 56 caps signed an 18-month contract with his childhood club, where he will hope to rediscover the form that led to him being named Hammer of the Year in 2003.
"It is a great move for me," the London-born midfielder told West Ham's official website. "Coming back here brings back all the memories of the pitches I learnt how to play on. This is where I learnt my trade and I'm happy to have another chance to be here.
"I've always loved West Ham and I hope I can give the club a few memorable seasons. The timing was right for me to come back and I'm happy. I'm back in London and I'm delighted to be here."
Cole played sporadically for the Reds this season after being on loan with French side Lille last season. He had been limited to 10 appearances in all competitions for Liverpool in 2012-13, scoring two goals, and he joins a West Ham side that has fallen to a mid-table position after spending the early months of the season in top form.
"I want to be here and I want to make an impact," Cole said. "The place has not changed much to look at, but I think Sam (Allardyce) has done a great job with the team. A few years ago, the club was in a bad way and Sam has done brilliantly.
"All in all, it will always be West Ham and the history will always be here and everywhere I go around the world, people love West Ham. Everywhere I go, people know me for having started here. Sam didn't have to sell me the club for me to come back. For me, I have had 18 months as Liverpool where I haven't played much football and Sam wants to play me.
"I'm going to need games to get back to my best, but I want to play football and come here and help the team to make an impact. I could see from the outside what a great bunch of lads we have here and there is a great spirit. I'm excited."