Collins has agreed a four-year contract, three seasons after leaving Upton Park for the midlands.
"It's great to be back. Having been here before and coming back and seeing some of the same old faces is great," he told West Ham TV.
Collins, capped 39 times by Wales, was part of the West Ham side that narrowly escaped relegation from the Premier League in 2007.
"As soon as I knew the interest was there from West Ham I couldn't wait to sign," he said. "I had a great affinity with the club and the fans when I was here the first time.
"I enjoyed my time here so much that it wasn't a hard decision to come back.
"Everyone knew that I didn't really want to leave when I did in 2009 because I was enjoying my time here so much.
"I can't wait to get cracking and show the fans that I am a better player now and can put in the performances on the pitch."