The Liverpool legend had a spell at Delhi Dynamos in ISL 2015 and inspired them to the ISL semis, making 15 appearances and scoring one goal.
After that spell in last year's ISL, Riise had a short stint at Norwegian club Aalesunds FK earlier this year. He made 10 appearances there between March and May and now joins Chennaiyin on a free transfer.
35-year-old Riise started his career at Aalesunds two decades ago and earned his first move abroad in 1998 when he signed for French club Monaco.
At Liverpool, he built up a reputation of scoring from long range and freekicks. He also netted 16 goals at international level.
After leaving Liverpool in 2008, Riise had spells in Italy's Roma, Fulham in England and APOEL FC in the Cyprus top division. He is Norway's most capped player at international level with 110 appearances.
"We are delighted to have signed John as our marquee player for the 2016 ISL. He is a player with exceptional quality and experience. We look forward to having a great season from him," Chennaiyin FC co-owner Vita Dani said in a statement.
Riise added: "Back in June I decided to take a break from football but I always kept the door open for a return and after speaking to Marco I found the motivation again to work hard. So I would like to thank Marco and the Chennaiyin FC owners for believing in me.
"Marco especially had a big influence in my decision. I am honoured to have the chance to play and work under Marco. Working closely with him will be a great experience for me for my future coaching career also."
Disclaimer: No Business Standard Journalist was involved in creation of this content
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