The Sydney-born 32-year-old terminated his contract with Rovers last year by mutual consent and has signed a three-year deal with Sydney FC, the A-League club said in a statement on Thursday.
Emerton, with 87 appearances for the national team, is the second most capped Socceroos player behind Fulham goalkeeper Mark Schwarzer (90) and represented Australia at the 2006 and 2010 World Cups.
"This is an exciting opportunity for me," Emerton said in the statement.
"I'm a Sydney boy and I'm looking forward to representing the people of Sydney every week and playing in front of friends, family and Sydney football fans.
"Football has been very good to me and I have always said I'd like to come back and play in the A-League while I still have something to offer and thanks to Sydney FC and Blackburn Rovers that opportunity has come about a bit earlier than I had thought."
The signing represents another recruiting coup for the ailing A-League, which has suffered declining crowds and financial troubles at a number of clubs in recent years.
Former Leeds and Liverpool midfielder Harry Kewell was unveiled as Melbourne Victory's marquee player last week in a move hailed by administrators as a "red-letter" day for football in Australia, where the round-ball game remains a bit-player in a sports market dominated by Australian Rules and rugby.
"The Sydney FC board has for some time viewed the signing of Brett Emerton as a major priority," the club's vice chairman Scott Barlow said.
"We have been fortunate that this has come to fruition a year earlier than we had anticipated after Brett requested, and was granted, a release from the last year of his contract with English Premier League club Blackburn Rovers.
"Brett is an incredible role model for all young footballers in Australia and his return to his home town of Sydney while he is still at the peak of his powers is a major coup for Sydney FC and the A-League."
A versatile player comfortable in central midfield or on the wing, Emerton began his career playing for Sydney Olympic in the now-defunct National Soccer League before joining Dutch side Feyenoord in 2000.
He moved to Blackburn in 2003 and has notched over 200 games for the Lancashire side, while scoring 18 goals in 87 international appearances.
Emerton will return to Australia next week for the Socceroos' first World Cup qualifier against Thailand on September 2 in Brisbane.
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