Ballack, whose contract at Chelsea has expired, will return to the Bundesliga after four seasons in London. The 33-year-old played for Bayer Leverkusen from 1999 to 2002 before moving to Bayern Munich for three seasons.
"Coming back to Bayer Leverkusen is completing the circle," Ballack said in a statement. "I had a great time and a successful run here that brings back happy memories I think about a lot. That reinforced my decision to return."
German media reports said Ballack's two-year deal was worth 12 million euros. Rivals VfL Wolfsburg reportedly offered considerably more money, media said.
Ballack was ruled out of Germany's World Cup side after suffering an ankle injury in May.
He has won four Bundesliga titles - one with Kaiserslautern and three with Bayern Munich. He also won domestic titles with Chelsea.
Ballack has never won a major international title despite making it to the Champions League final twice. He missed the 2002 World Cup final, when Germany lost to Brazil, due to suspension. In 2006, Germany lost in the semi-finals to Italy and at Euro 2008 Germany lost to Spain in the final.
