The 31-year-old will play for Paraguayan third division 12 de Octubre, the club where he began his career in 1997 in Itagua, 30km from Asuncion.
"I'm really well... it's very nice to recall old times, when I started out, very young at 15. I felt really proud [then]," Cabanas said at his official unveiling on Friday.
"We'll be out on the pitch again at any moment," he added as he sat beside team coach Rolando Chilavert, who said Cabanas would have to earn a first team place.
Club president Luis Salinas, speaking to Reuters earlier on Friday, said: "He always wanted to return to the club where he was born [as a player] and where he feels at home.
"On Monday he will put on the [team's blue and white] gear and start training."
Cabanas, who missed the 2010 World Cup in South Africa where he was expected to shine, was shot in the head in the bathroom of a Mexico City bar during an argument with an alleged drugs dealer, who was arrested last year.
After weeks in a Mexico City hospital where doctors decided against removing the bullet, which is still lodged in his head, Cabanas continued his recovery in a clinic in Buenos Aires before returning home to Paraguay.
"Salvador is well. He's lacking a few things like rhythm, speed, but he'll still continue with his treatment at the same time as he practices with his club," his father Dionisio said.
"This is something very emotional for the family because we've suffered a lot," he said.
Part of Cabanas's recovery has included practising as a guest with leading Paraguayan first division side Libertad since February 2010.
Last August he took part in a friendly between Paraguay and his former club America, playing a few minutes for each.
Cabanas first moved abroad in 2000 when he joined Chilean first division side Audax Italiano after helping 12 de Octubre win promotion to the first division.
From there he moved to Chiapas in Mexico in 2003 and was transferred to the Azteca-based America in the Mexican capital in 2006.
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