The versatile attacker was a key part of the Lilywhites’ squad following his arrival on loan in October 2013, scoring a hat-trick in his second appearance against Barnet in the FA Cup.
The Scot went on to score a total of ten goals in 35 appearances for North End in 2013/14, including a second hat-trick against Shrewsbury Town, and he was nominated for Sky Bet League One Player of the Month for April.
Speaking of Gallagher’s capture manager Simon Grayson said: “It was something we were looking to do with Paul Gallagher over the summer.
“He made it very clear to us that he wanted to come back and after negotiations with Leicester City it is a done deal for the season.
“We are grateful to Leicester for letting him come here.”
This will be Gallagher’s third spell as a Preston player; back in 2007 he scored once in 19 appearances for the Club.