The Ivory Coast international won the Victory medal, awarded to Melbourne Victory's best player for the season, in 2014 before heading to Europe.
He has since had spells in Portugal, Switzerland and Turkey.
The 29-year-old joins Victory on a one-year deal and will not take up a visa spot because he became an Australian citizen in 2013.
In a statement released by the club, Traore expressed his delight at returning to Victory.
“I’m pleased to be back at Melbourne Victory and can’t wait to get started with the rest of the group," Traore said.
"I have very fond memories of my previous time at the club and am looking forward to playing in front of the best supporters in the league once again."
Marco (Kurz, Victory's coach) has spoken to me about the style he wants to play, which as an attacking full-back, is something that excites me.”
Kurz, who was previously in charge of Adelaide United, explained what a coup this was for the club.
“When the opportunity presented itself to bring Adama Traore back to Melbourne, we absolutely wanted to make that happen,” said Kurz.
“Adama is an experienced player that has proven himself in Europe and at Melbourne Victory previously, and he will add a lot of quality to our backline."
Traore's most successful spell came between 2015 and 2017 where he won three Swiss Super League titles and played in the Champions League against PSG and Arsenal.
The former Gold Coast United player moved to Turkish side Goztepe in 2017, where, in his second season, he damaged his knee ligaments and was ruled out of the rest of the campaign.
Melbourne Victory squad for 2019/20:
Matthew ACTON, Kenjok ATHIU, Jay BARNETT, Corey BROWN, Leigh BROXHAM, Benjamin CARRIGAN, Thomas DENG, Kristijan DOBRAS, James DONACHIE, Tim HOOGLAND, Josh HOPE, Elvis KAMSOBA, Birkan KIRDAR, Robbie KRUSE, Brandon LAUTON, Anthony LESIOTIS, Andrew NABBOUT, Jakob POULSEN, Storm ROUX, Matthew SUTTON, Lawrence THOMAS, Ola TOIVONEN, Adama TRAORE.
