Fonseca guided Pacos to third place in the 2012-13 Primeira Liga, and that performance persuaded then-champions Porto to acquire his services.
However, the 41-year-old was relieved of his duties at Estadio do Dragao in March after a disappointing campaign.
Pacos, meanwhile, struggled badly last term - only avoiding relegation to the second tier by virtue of a play-off victory over Desportivo Aves.
And the Estadio da Capital do Movel have turned to the man who led them to third place to revive their fortunes, with Fonseca saying he is thrilled to return.
"This is not a step back, he said at a press conference on Wednesday. "It was a year of great learning for me (at Porto).
"It was the year I grew more as a coach. I do not regret anything, not having gone to Porto or returning now to Pacos Ferreira.
"The way people received me is a sign that I'm taking a good decision.
"I'm very happy with this return, but I know it will not be like two years ago.
"The budget is much lower, and we will have to build a team almost from scratch."
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