The 35-year-old turned down offers from abroad to rejoin City, where he spent six months on loan last year, and has revealed he is delighted to be returning to Ashton Gate.
Speaking to the club's official website, Elliot, whose deal with Birmingham ends on July 1, said: "I'm pleased with how everything has panned out.
"I had a great time at the club last season and this has all been very straightforward.
"I remember the gaffer coming up to me five minutes after the end of the Crawley game (final day of the 2013/14 season) and saying 'do you fancy it next season?'.
"I said 'yes' immediately, so he told me to go and enjoy my holidays and we'll work something out.
"It really was a no brainer for me, which is probably testament to how well last season went. Everyone at the club treated me so well, the fans were terrific and it's great to be back."
He added: "I seriously thought about going abroad to further my football career and was quite set on that for a bit, but because I enjoyed my time (at Bristol City) last season, my mind was made up as soon as the offer came my way.
"I've gone on record to say how grateful I am to Steve Cotterill for giving me my chance at Burnley. He showed faith in me then and he's done it again here at Bristol City.
"I believe in everything the gaffer is trying to do here. I'm confident in the squad he is building and I'm sure we'll have a right good go in the forthcoming season. I'm really excited to get going now."