The richly-talented 24-year-old's unhappy time in Melbourne culminated with a drunken assault on captain Gareth Delve and team mate Cooper Vuna in South Africa in March.
Another infraction of the team's disciplinary code saw Beale stood down indefinitely by the Rebels and return to his home city of Sydney to undergo counselling for issues relating to alcohol abuse.
Beale did, however, play a part in all three of Australia's tests against the British and Irish Lions before deciding to have surgery on his shoulder in a move that has sidelined him for the rest of the year.
"I feel at home in Sydney, it's where my family are," Beale said in a statement after signing the one-year deal with the Waratahs and Australian Rugby Union (ARU).
"The Waratahs are a team going places and I'm really looking forward to playing some good, consistent rugby.
"I've made the decision to get my shoulder right, I hope this next year will be a big one for me.
"I'm excited by the World Cup on the horizon and I'm just looking forward to getting back to playing really good rugby, having a big year for the Waratahs and hopefully getting selected for the Wallabies."
His long anticipated return to the Waratahs, who he first signed for as a 16-year-old schoolboy, has been a protracted process and Beale was linked with a move to rugby league this week.
"Kurtley is an extremely talented player and we can't wait to see him back in a sky blue jersey and playing our style of game," said Waratahs coach Michael Cheika.
"Kurtley is just coming into his prime playing years and over this period, we want to ensure that he maximises his potential as a rugby player."
The Lions series was not without off-field incident for Beale, who was photographed with team mate James O'Connor at a fast food restaurant at 4 am during the week of the second test.
The failure to control the antics of the pair was behind some of the criticism of Wallabies coach Robbie Deans, who departed in the wake of the 41-16 hammering in the third Lions test.
At international level, after he returns from injury, Beale will now have to impress new coach Ewen McKenzie, who handed the then flyhalf his Waratahs debut when he was still a teenager.
"He's a high quality player," McKenzie said in an ARU release. "I'm looking forward to having him back playing his best footy, that's obviously a good thing for the Wallabies."
(Editing by Patrick Johnston)
