Pepe played for Porto between 2004 and 2007 before being snapped up by Real Madrid, whom he represented for a decade.
He joined Besiktas in 2017 and was well-regarded by supporters, but he opted to agree to a mutual termination of his contract towards the end of last year in a bid to help the club's worsening financial woes.
Reports swiftly suggested a return to Porto was on the cards, and the deal was finally announced on Tuesday.
"Pepe is a new signing for FC Porto," the club confirmed on its official website.
"The central defender has signed a contract lasting for two and a half seasons, until June 30 2021, and returns to Porto, whom he represented between 2004 and 2007."
Pepe added: "Porto continues to be a very special club for me."
The defender, born in Brazil but a European Championship winner with Portugal in 2016, is fondly remembered by the Dragao faithful.
Pepe helped his side lift the 2004 Intercontinental Cup during his three-year spell, and also won two Primeira Liga crowns with the club.
He re-joins the club seven points clear at the top of the league table and could make his second debut in Saturday's important trip to Sporting CP.