The 37-year-old swingman spent six seasons with the Warriors (2013-2019) -- winning three NBA championships -- prior to spending the past two seasons as a member of the Miami Heat, who last week declined a $15 million team option for next season.
Iguodala averaged just 4.4 points in 21.3 minutes over 63 games last season, but he will provide an important leadership role on the team he helped push to three NBA titles during his tenure.
"Who would have thought I'd have the opportunity to go back to the place where I was able to have, whatever you want to call it, legacy years, in terms of the accomplishments, winning multiple championships, the relationships that I was able to build with some of my closest friends and teammates?" Iguodala told the New York Times on Friday.
"The relationship with the fans, the relationship with the Bay, the opportunity to end it here, was just something special."
Iguodala, who was Finals MVP in 2015, remains one of the most respected veterans in the game, and his relationships inside the Warriors' locker room, specifically with star guard Stephen Curry, will make for an easy transition back to his old team.
Iguodala has been widely praised for his basketball IQ over the years, with Warriors coach Steve Kerr repeatedly saying that Iguodala is one of the smartest players he has ever coached.
Entering his 18th NBA season, Iguodala has drawn Hall of Fame praise from Kerr in recent years and will provide the type of solid, veteran wing the Warriors were missing at times throughout a 2020-21 campaign in which they failed to make the postseason after losing to the Los Angeles Lakers and the Memphis Grizzlies in the inaugural play-in tournament.
Iguodala won NBA championships with the Warriors in 2015, 2017 and 2018. The 17-year veteran has career averages of 11.6 points, 5.0 rebounds and 4.2 assists.
Iguodala said he pondered retirement after last season, but came to the realization that he's "got some more time left."
"Where I'm comfortable at is I can decide when I'm ready to go," Iguodala told the Times. "I think I want to leave with just a little bit left. I don't want to go out on one leg. I know I've got a few more years. It's just my decision whether it's one or two or three or whatever it may be. I shouldn't even say three. One or two."
The Warriors on Friday also made official their free agent signing of forward Nemanja Bjelica to the league minimum. Saying "this is the best fit for me right now," the Serbian big man will earn $2,089,448.
He averaged 6.5 points, 3.4 rebounds and 1.9 assists playing 16.1 minutes over 37 games with three starts between Sacramento and Miami last season.
Earlier this week, the Warriors and Stephen Curry reached agreement on a $215 million, four-year contract extension that takes him through the 2025-26 season, when he will be 38.
Golden State also has agreed to trade power forward Eric Paschall to the Jazz for a 2026 protected second-round draft pick via Memphis. It was the Grizzlies who ended the Warriors' season in the play-in tournament.
ESPN's Nick Friedell and The Associated Press contributed to this report.