The 23-year-old was sentenced to 18 months in jail after being found guilty at Leeds Crown Court of two separate assaults in October, but served only four and a half months and will now resume training with the Sky Bet Championship outfit.
Madine was in contact with Carlisle boss Graham Kavanagh during his time in prison and the League 1 club last week showed an interest in signing the striker.
But the Owls have opted to reintegrate him back into the club and have vowed to help his rehabilitation, though warned him he is in the last-chance saloon.
Chairman Milan Mandaric said in a statement: "First and foremost, Gary is remorseful and has apologised to all those affected.
"He has made some serious errors of judgement and is the first to take ownership of that situation and the consequences that followed.
"We can only condemn his actions, as a community-focused football club, and make it abundantly clear that no further breach of club rules will be tolerated.
"However, we are of the belief that Gary will try his utmost to put this episode behind him, whilst never forgetting the impact of his actions.
"In addition, we firmly believe the club can play a key, hands-on role in facilitating Gary's rehabilitation back into the professional working environment."
Madine, who joined the Owls in 2011, added: "I would like to apologise unreservedly to everyone who has suffered through my actions. I realise I let myself, my family and friends, and Sheffield Wednesday Football Club down.
"I now wish to look forward with all the focus on my football.
"I would also like to place on record my appreciation for everyone who has offered me help and support during this difficult period of my life.
"I am grateful to Sheffield Wednesday for giving me this continued opportunity and I can only promise never to let the club or anyone else down in this manner again."
Madine is unlikely to be involved in Wednesday's Championship clash with Middlesbrough on Saturday.