Williams has won 62 Test caps for his country and made three appearances for the Lions on their 2017 tour of New Zealand.
He is now recognised as one of the leading players in world rugby.
The 28-year-old is currently with English Premiership and European champions Saracens, but will head back home for the start of the 2020-21 campaign.
Williams said: “I’ve thoroughly enjoyed my time at Saracens over the past three seasons. The environment has undoubtedly developed me as a player and a person.
“I am grateful for the support I’ve had from the players, management and supporters during this time.
“The opportunity to return home to the Scarlets was too good to turn down and I am incredibly excited about the future.”
During six seasons with the Scarlets Williams scored 29 tries in 111 appearances.
He helped the Llanelli side to the Guinness PRO12 title in 2016-17 before joining Saracens where he has won domestic and European titles.
As well as club success during a glittering 2019, Williams was a key member of Wales’ Six Nations Grand Slam-winning side and the squad that reached the semi-finals of the Rugby World Cup.
“We are delighted Liam is heading home to the Scarlets,” said Scarlets general manager of rugby Jon Daniels.
“He is one of the leading players in world rugby and to be able to sign a player of his calibre at the peak of his powers highlights our determination to build a squad that will challenge for silverware.
“Having Liam playing alongside the likes of Leigh Halfpenny, Johnny McNicholl, Steff Evans and our exciting young back-three talent is a mouth-watering prospect.
“Liam came through the ranks here at Parc y Scarlets and he understands the culture and values we stand by and also what we want to achieve.
“He is an attacking runner that can light up games, while his ability in the air and defensive qualities are second to none. There is no doubt we are signing a world-class player.
“Liam is also a popular figure with players, coaches and supporters and we are all excited by the prospect of seeing him back here at Parc y Scarlets.”
