The 29-year-old, entering the final year of his contract at Leicester, has been deemed surplus to requirements at the Premier League club and sealed a switch to Deepdale on Saturday.
Gallagher joined Preston first in 2007 when he was on the books at Blackburn Rovers and returned last October as he helped the Lancashire outfit reach the League One play-offs.
Preston boss Simon Grayson told the club's official website: "It was something we were looking to do with Paul Gallagher over the summer.
"He made it very clear to us that he wanted to come back and after negotiations with Leicester City it is a done deal for the season.
"We are grateful to Leicester for letting him come here."
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