Canas, who leaves on a free transfer, joined Swansea from Real Betis last year, also on a three-year contract.
The 27-year-old made 35 appearances for City last season, but his contract has been cancelled by mutual consent, allowing him to return to Spain.
Canas was signed by former Swansea manager Michael Laudrup in the summer of 2013 and featured heavily in the club's Europa League campaign.
But his last game for the Welsh club was at Everton at the end of March and new manager Garry Monk told him in the summer that he was not part of his plans.
Canas, who had also been linked with Spanish club Elche, returns to La Liga by joining an Espanyol side that has picked up one point from their opening two top-flight matches.
"Everyone at Swansea City would like to thank Jose for his services to the club, and wish him well for the future," said a club statement.