As part of the deal, Juventus will pay an initial €10 million (£9m/$11m) fee for the season and another €10m if they want to retain Morata for another year, while there is a €45m (£40m/$52m) option included to make the transfer permanent after the first season.
If Juve decide to extend the loan for a second year but then want to sign Morata permanently, they will have to pay Atletico €35m (£32m/$40m) - meaning any permanent transfer for the striker will cost Andrea Pirlo's side €55m (£50m/$65m) in total.
Morata was part of the Juventus attack in both the 2014-15 and 2015-16 seasons, scoring 27 goals in total and helping them reach the Champions League final in his first campaign before moving to Real Madrid.
He won five trophies in his first two seasons with Juve - two Serie A titles, the Coppa Italia twice and one Italian Super Cup. His final game in his first spell was the 2016 Italian Cup final, where he scored the winning goal against AC Milan.
Juventus' statement on their club website announcing the transfer said: "There’s nothing more exciting than a homecoming and the return of Alvaro Morata to Turin is a beautiful one at that!
"Alvaro Morata had only spent two years at Juventus, before Real Madrid recalled him to the Spanish capital. However, a lot can happen in two years and Alvaro certainly left an album of memories, filled with many spectacular moments: goals, celebrations, victories and trophies!
"Memory albums are there to be opened, to reminisce upon old moments, but also to add new ones and we can’t wait to create many more memories, together once more!"
With Gonzalo Higuain having left to join Inter Miami, Juve had been linked with the likes of Barcelona's Luis Suarez and Roma's Edin Dzeko. Juventus had reached an agreement to sign Dzeko, but that deal was complicated by Roma's desire to sign Napoli forward Arkadiusz Milik as a replacement.
Instead, Pirlo will welcome back his former team-mate Morata as the forward returns to familiar surroundings in his much-travelled career.