The 31-year-old has signed an 18-month contract at Upton Park to end a miserable spell at Anfield.
Cole told his new club's official website: "It is a great move for me. This is where I learnt my trade and I'm happy to have another chance to be here. I've always loved West Ham and I hope I can give the club a few memorable seasons."
Cole emerged from the club's academy to sign professional terms in 1998 and helped them win the FA Youth Cup the following year, becoming a firm fans' favourite before leaving for Chelsea in 2003, when he became one of their first signings following Roman Abramovich's takeover of the club.
There, he won eight major trophies including three Premier League titles, was named in the Professional Footballers Association team of the year in 2006 and has won 56 full England caps.
But after joining Liverpool as a free agent, he was sent off on his Premier League debut and missed a penalty in his next appearance, a Europa League qualifying match against Trabzonspor. The poor start set the tone for a Reds career hampered by form and fitness problems and he was allowed to spend last season on loan at Lille.
He scored nine goals in 42 appearances for the French club and will have the opportunity to further rebuild his career at the club where he first made his name.