Malbranque, 32, started his career at Lyon before moving to Fulham, where he became a fan favourite.
Less successful but nonetheless decent spells at Spurs and Sunderland followed, before he returned to France with Saint Etienne last season, only to tear up his contract with the club for undisclosed reasons.
A year out of the game led to rumours he would retire, but after a successful trial the Belgian-born former France U21 international has returned to Stade Gerland.
“I’m really happy to have him back at the club,” boss Remy Garde said. “We do not forget that he was developed here, has real quality a great mentality.
“He is not far from his peak level and he is ready to play. His versatility and maturity will help us as we have a young midfield. He will play in front of the defence and use his skill to start attacks from deep.”
In a wider sense the transfer shows a change in tack for the previously big-spending French club. At their peak a few years ago – when they won seven consecutive Ligue 1 titles – Lyon would have been happy to spend tens of millions on the best talent in France and South America.
But times have changed and this summer they signed Argentine defender Fabian Monzon for £3.5 million from Nice, half of which was covered by a part-exchange with Jeremy Pied, and spent just £2m on Paris Saint-Germain midfielder Milan Bisevac – a far cry from the £20m they spent on Lisandro Lopez in 2009.
Back to Malbranque, the player revealed he never intended to quit football last year, explaining that he used his sabbatical to enjoy other sports, competing at an amateur level in distance running, tennis and squash.
“I never said that I wanted to retire. After I left Saint-Etienne, I had some offers but none were convenient for me. So I decided to take a break but I knew I fancied a comeback. I missed football.”