The midfielder won three Portuguese titles and five Portuguese League Cups during his time with the Lisbon club.
He then went to Atletico from 2016 to 2018 before heading to China.
"Nicolas is a player that can destabilise any defence in this league," Chicago Fire head coach Veljko Paunovic said. "He has an enormous amount of talent and is still in his prime. We're eager to get the most out of his attacking creativity."
Gaitán has made 16 international appearances for the Albiceleste, since making his debut in 2009.
Chicago made history after winning the MLS Cup in their debut year in 1998 but have not managed to return to the league's showpiece game since 2003, when they were beaten by San Jose Earthquakes in the final.