Kerr was on loan with the Steelmen from Birmingham last season, and he becomes the club's fourth signing of the summer.
The 20-year-old joins Paul Lawson, Iain Vigurs and John Sutton at the club as manager Stuart McCall reshapes his squad.
And Kerr, who is a product of the Motherwell youth academy, admits he is pleased to be working under McCall.
Kerr said: "I am absolutely delighted to sign for Motherwell. When I was up on loan last season, I knew even then this is the place I wanted to be when my contract at Birmingham City expired.
"I am really grateful for the manager for showing faith in me. My aim is to try and establish myself as a first-team player.
"The second half of last season was interrupted by injuries so I am hoping to stay injury free and play some more regularly this season.
"Pre-season has been great so far. I just can't wait for the games to get going again."