The 20-year old winger has departed Wolves to return to London Road following a successful loan spell during the 2010/11 season, signing a three-year deal for an undisclosed fee.
"I felt it was the right move at the right time for me," Mendez-Laing told the club's official website. "I am 20 years old now and I want to be playing football.
"When I heard Peterborough were interested I was very keen to come and I am pleased everything has been sorted out.
"The manager has talked to me about formations that we will be using this season and I am excited. Playing in the Championship was a massive attraction to me."