The Belgium winger left Atleti for the Chinese Super League in February 2018 but returned on an initial loan deal in January.
It was confirmed on Wednesday (AEST) Atleti has now made Carrasco's signing permanent, with the 27-year-old penning a four-year deal at the Wanda Metropolitano.
Since linking back up with Diego Simeone's side, Carrasco scored once and provided four assists in 16 matches as Atleti secured Champions League football via a third-place finish in LaLiga.
During his first spell, Carrasco scored 23 times and added 17 assists in 124 games, while he has also netted six times in 41 appearances for his country.
Atleti is scheduled to face Granada in its 2020-2021 season opener at the end of September.