The 31-year-old spent nine years with the Hammers before moving to Chelsea for £6.6 million in 2003.
The 56-capped England international has now signed an 18-month contract with his childhood club, however, 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 was quoted as saying on 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.
|25/1||West Ham are 25/1 to beat Manchester United 2-0 with bet365|
"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," he added.