The 34-year-old midfielder helped Ipswich secure back-to-back promotions and captained them during their 2024-25 Premier League campaign.
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Morsy, who was born in Wolverhampton, represents Egypt internationally and left Ipswich in May 2025 after four years.
He briefly played for Kuwait SC before departing after two months. Morsy later joined Bristol City, scoring against Norwich in April.
"I know a lot about the club because my mum was born here, my grandparents, uncles and aunties are all here, lots of my family," Morsy told Blackburn's website.
"I want to win and I do anything necessary to win. It's a club I know everything about and we want to give the fans a good team again."