Kevin Keegan let Dickov join Leicester for a nominal fee in 2002 before he moved onto Blackburn in 2004, scoring 14 goals in 50 league games.
"It's fantastic for me," he told City's official website. "I never wanted to leave in the first place.
"I've a great love for this club, and I know players often say that and people may question that, but I genuinely have a big affection for Manchester City.
"I support the club myself, my kids are Junior Blues and it's a massive thing
for me to come back. I can't stop smiling about it!
"Blackburn offered me a great deal to stay there - 2 years - and they are going into Europe," he added. "But I just felt the chance of coming back here was too big a pull for me.
"Financially, I could have gone elsewhere, but this is the club I support and
it's one where I want to be successful.
"Playing for Stuart Pearce is also a draw, but so are the fans. I said it when I was here and since I left, but they are the best fans in Europe.
"I had a lot of good luck messages from City fans when I went to Leicester,
and even when I went to Blackburn. They were a factor, and a big reason to pull me back to the club.''