The 27-year-old spent the second half of last season on loan at Oakwell, where he made a big impression in his 16 appearances.
O'Grady became a favourite amongst the Oakwell faithful with six goals during his first spell with the club, including crucial strikes against Derby, Hull City and Huddersfield in the final game of the season.
The forward has penned a two-year deal with the Tykes, keeping him at the club until the summer of 2015, and the former Owl is already excited about the new season.
"It's been a bit of a journey from the end of last season to get to this point, but I am delighted to have signed and I'm looking forward to pre-season training," he told the club's official website.
"The signing this week of Dale Jennings and myself shows the club are doing the right things and looking to give this season a good push.
"I'm looking to continue where I left off last season and get goals. I'll set some short-term targets, attain them and then set some more.
"Last season I was determined to give everything from the first minute and happily the fans here took to me and that spurred me on to do well for them. We know what we can do if we perform and if we can repeat our form of 2013 then we can achieve what we want to."
The striker will make his first appearance as a Barnsley player on August 3 when the South Yorkshire side host FA Cup winners Wigan Athletic.