O'Connor joined the Wallabies in Johannesburg to train this week but was not eligible for selection for Saturday's Rugby Championship clash without the deal.
The 29-year-old signed a two-and-a-half year deal with the Reds so is now available to add to his 44-Test career.
O'Connor became the youngest ever Super Rugby debutant at age 17 and the second youngest Wallaby in Australian rugby history at age 18, but his promising career went off track through a number of off-field incidents.
His last Test was in 2013 and he last played in Australia in 2015, when he spent a season with the Reds, before being released to shift his career to the UK.
In his last two seasons with Sale Sharks. O'Connor has impressed both on the field and off With Queensland midfield ace Samu Kerevi signing to play in Japan after this year's World Cup, O'Connor is the perfect replacement in the young backline.
O'Connor said he was grateful for another chance in Australian rugby.
"There's been a lot of work put in behind the scenes and a lot of guys have shown faith in me so all I'm focusing on right now is putting my best foot forward," O'Connor said.
"I have a bigger 'why' now and that is what fuels me."
O'Connor admitted his last stint with the Reds was unsatisfactory and felt he owed his home state.
"Last time I wasn't in the best place mentally, but also physically I was quite broken, so I couldn't produce and perform the rugby I wanted to for the team.
"I'm finally ready to return and make amends."
O'Connor said his preferred position was at inside centre but would take any opportunity to again play for Australia.
Wallabies coach Michael Cheika is unlikely to select him to face the Springboks ahead of a number of proven performers within the squad.
However, he is now in the mix for this year's World Cup in Japan, after taking part in the 2011 edition.
Rugby Australia director of rugby Scott Johnson said he believed O'Connor had returned home with the right intentions.
"He's matured and understands the leadership roles both on-and-off the field," Johnson said.
"He's been honest and transparent throughout this whole process.
"We want to back the man to be the player we know he can be."