The 28-year-old played eight times for the Eagles last season before switching to Wakefield Wildcats.
He made 16 appearances for the Wildcats but was released by incoming coach Richard Agar at the end of the campaign.
Sheffield coach Mark Aston is delighted with the capture of the Doncaster-born front rower.
“We now have a strong front row and that’s important to us. Liam’s a South Yorkshire lad and at the age when props are reaching their peak and we hope that he will be part of Sheffield Eagles for a few more years.”
Aston said: “Liam had plenty of other offers from other clubs in the Championship but he had a good time here last year.
“Last season we were just starting to see the best of Liam when Wakefield came in for him. I’m delighted he’s back.”
Higgins is likely to feature in the pre-season friendly against the Wildcats on January 6, a game organised as part of his transfer to Wakefield last March.
He said: “It’s been a bit of whirlwind but Mark came in and I’m happy to be back.
“I’d signed a contract at Wakefield but the new coach came in and I wasn’t part of his plans. I’m looking forward to the season.”