World Cup and European Championship winning left-back Capdevila, 34, started his career with the Catalan side but moved to Atletico Madrid 1999 before long spells with Deportivo and Villarreal, where he rose to prominence.
Eventually becoming Spain’s first-choice left-back during Villarreal’s heyday in the late 2000s, Capdevila’s career tailed off recently and he joined Benfica last summer.
Failing to make an impact at the Portuguese club, he has been allowed to return to Espanyol for little over £250,000.
Capdevila won 60 caps for Spain, the last of which came in 2011, before he lost his Villarreal place to Jose Catala.
He is Espanyol's fourth signing of the summer, joining Diego Colotto, Sergio Tejera and Mubarak Wakaso at the Barcelona-based club.