The 30-year-old midfielder has returned to the Blades on a year-long deal, six months after his first stint at the club was wrecked by suspension and injury.
Phillips made just three appearances during that initial loan, sent off in February's Steel City derby before a knee problem ended his season early. Despite the disrupted spell, manager Chris Wilder made re-signing him a priority for the new campaign.
"We've stayed in contact with Kalvin throughout the summer and in those conversations what was always clear was both sides wanted to make this happen," Wilder said.
"Clearly, there has had to be a degree of patience to get a deal completed.
"Make no mistake, this is a good deal for the football club, and I have to thank the owners and Blades CEO Stephen Bettis for their diligence and persistence to get this one done."
The England international, who has fallen down the pecking order at Etihad Stadium, was left out of City's pre-season tour of Asia as new boss Enzo Maresca reshapes his midfield options. That made a temporary return to South Yorkshire straightforward to arrange, with Phillips keen to rebuild his career after an unhappy few years since leaving Elland Road.
"This was the move I wanted," Phillips told the club website. "My time was spoiled by my last game and the injury after that so I'm here to put that right. The squad is similar to what it was last year, I'm happy to see everyone and I'm looking forward to coming back fighting fit."
Phillips left boyhood club Leeds for Manchester City in 2022 in a deal reported at up to £45 million, signing a six-year contract at the Etihad. He was part of the squad that swept the Premier League, Champions League and FA Cup treble in his first season at the club, though regular first-team football has proven elusive ever since. Loan spells at West Ham United and Ipswich Town preceded his first switch to Bramall Lane in February, and Wilder will hope a full pre-season and a settled run in the side finally allow the midfielder to show the form that once made him a fixture in England's squad.
United begin their Championship campaign looking to build on last term's top-half finish, with Phillips expected to compete for a starting berth in central midfield from the opening weeks of the season.
Wilder has leaned on loan signings from Premier League clubs throughout his time at Bramall Lane, and sees experienced, high-pedigree players like Phillips as a reliable route to strengthening a squad without stretching the club's budget.