The midfielder, who spent a brief period on loan with the Glovers in 2013, had been at Bradford since the start of last season, while a further loan spell at Hartlepool was disrupted by injury earlier in the campaign.
He made 20 appearances in total for the Bantams, including in the FA Cup quarter-final defeat to Reading, but has opted to return to Huish Park.
Speaking to the club’s official website, Dolan revealed the reasons behind the move.
He said: “I am over the moon to be rejoining Yeovil. I have such good memories from my previous time at Huish Park.
“It is a good chance for me to play regular football and I’m looking forward to helping the club push for promotion back to League One.”
Manager Paul Sturrock added: “Fans will know Matt from his previous spell with the club. It is a big boost having a player here that knows the area and what the club is all about.
“Having watched him several times I feel he will be a significant signing for us.”