The experienced midfielder has rebuilt his career over the past season, playing for Everton U23s.
Baxter spent a year with League One Oldham before joining Sheffield United in 2013.
Baxter had rejoined Everton last year after being given a chance with his boyhood club following a drugs ban.
Latics boss Richie Wellens said: “He is a player that the fans will know well.
“He's a talented player who has had some indecisive moments in his career and made mistakes but he has trained with Everton for the last 15 months and it is about time now he stepped back into first team football and prove what a good player he is.
“I'm looking forward to working with him and giving him an opportunity now to get his career back on track and show the talent he has got."