Having been under contract until 2018 with Bordeaux Begles, the French side granted Kepu an early release, with the Wallabies forward returning to the Super Rugby on a deal from 2017 to 2019.
The 30-year-old and 63-cap international, who was selected in Australia's 39-man training squad for the upcoming three-Test series against England, had only moved to Bordeaux last year.
Kepu spent seven years with Waratahs after debuting in 2008, and he was a key member of the 2014 championship-winning team.
"I'm delighted that Keps is returning to Australia, and happy to welcome him back to the Waratahs," said coach Daryl Gibson.
"He will be a great addition to the squad and will strengthen our front row options.
"I'm sure he would have grown from the experience in France, where there is a real scrum culture. It can only benefit our young props in Tom Robertson and Matt Sandell, as he helps them grow and pass on his knowledge."