The Republic of Ireland full-back was a free agent after being released by Atletico Madrid, where he made just two appearances following a move to Spain in the January transfer window.
Doherty previously enjoyed a decade-long stint with Wolves, making 302 appearances and scoring 28 goals while providing 21 assists.
He left in the summer of 2020 for Tottenham Hotspurs but could not stamp his authority on the right back position in North London.
Doherty, 31, is now back at the Molineux Stadium to become Julen Lopetegui's first summer signing.
Wolves sporting director Matt Hobbs said: "We're really happy Matt's back and he's one the manager really wanted when he knew he was available.
"After Spurs and Atletico Madrid, he's hungry to prove himself again and will add strength in depth to the full-back area, providing competition and making us better in those positions.
"He knows the club and what it means to play here - he's been successful at Wolves before and knows what the fans want.
"For us, it's another homegrown player, but one who can share his knowledge and the required standards across the group, so he will be able to slot back in no problem.'
Speaking to the club's official website, Doherty said: "Obviously, it's a little bit strange, seeing some old faces as well as a lot of new ones – I think there is only five players here who were there the last time, so it is a bit strange. But once I get training and everything like that, it will all be fine.
"I'd been here a long time and had some great times here as well. I still have my house here in the midlands and I've been able to move straight back into that, so everything has been running really smoothly.
Doherty's contract with Wolves runs for three years.
