The 31-year old joins from Gloucester City and reunites with boss Graham Westley for a third time.
Reid scored 66 goals in 112 appearances for the Exiles between 2008 and 2011, helping them win the 2010 Conference South title, before Westley paid £100,000 to take him to Stevenage.
Newport have also re-signed former club captain David Pipe.
Defenders Mark O'Brien and Sid Nelson have also arrived at Rodney Parade.
"I am delighted to confirm I have signed a contract back at Newport County, the club I enjoyed so much success with," Reid wrote on Facebook.
Newport County have re-signed striker Craig Reid, the fourth signing made by the Exiles in 24 hours.