Dixon played his first three NBA seasons with the Wizards, from 2002-03 to 2004-05. He has also been with Portland, Toronto and Detroit, averaging 8.9 points, 1.7 assists and 1.9 rebounds over six seasons.
"He's a proven NBA player. He's a tough, hard-nosed competitor," Wizards president Ernie Grunfeld said.
After beginning last season with the Raptors, Dixon was traded to the Pistons in February.
He was selected the Most Outstanding Player of the 2002 Final Four for helping Maryland win the national championship, then was picked in the first round of that year's NBA draft by the Wizards.
"I'm excited to return to the area and to resume my career with the Wizards," Dixon said. "I'm looking forward to the start of training camp and I'm ready to step in and contribute wherever coach [Eddie] Jordan and the team sees fit."
The Wizards open training camp Saturday in Richmond, Va.