Fahey, who last played a game in February and is without a club since Birmingham City released him in May, returns to the club from whom he earned the lucrative move to the Blues in January 2009.
The 30-year-old’s career had initially surged in England, where he won the League Cup in 2011 and 16 senior Ireland caps, but injuries blighted the second half of his four-year stint, with a troublesome groin injury forcing his late withdrawal from the Euro 2012 squad.
Although Sheffield United took the midfielder on trial recently, no deal materialised and the Dublin native looked to the domestic market for a lifeline.
Saints manager Liam Buckley, having snapped up one of the best strikers in the country, Mark Quigley, last week, convinced club owner Garrett Kelleher to authorise funds for this latest capture.
It is understood an element of the contract is contingent on Fahey playing a certain number of games.
“I’m delighted with the prospect of coming home and to be back at the club,” said Fahey.
“I enjoyed my time here before, so I’m now just looking forward to get back playing football.
“I was offered various deals from other clubs and ones which were financially a lot better, but I’ve come back here because of the great loyalty I’ve always received. Both the fans and the club have always been great to me, and the stability of the club behind the scenes really made me want to come back and play my football in Inchicore again,” added Fahey, who scored 31 goals in his previous 191 outings for the champions.