The rare animals have been found on the 145-acre Cudworth Common in Barnsley, which is managed by the Forestry Commission and owned by the Land Trust.
Water voles have vanished from many of their former haunts and , as a result, there is now a dedicated "biodiversity action plan" to prevent the species becoming extinct.
An ecologist and biodiversity officer at the Forestry Commission, Adrienne Bennett, said: "Habitat creation is a key goal in Cudworth's transformation into a thriving woodland, so the fact that we have water voles is tremendous news.
"Creating a thriving woodland will transform Cudworth from a derelict site. Losing riverbanks and being eaten by mink are just two of the factors behind the water vole's demise. Over the last 60 years they are said to have vanished from 90 per cent of their UK homes. Cudworth is doing its small part to bring them back."
Rangers from the Forestry Commission found water vole latrines along watercourses in the wood.
A spokesman for the organisation said: "Although it's a smelly job, hunting for droppings is the best way of confirming the creature's presence as actually sighting one can be very difficult.
"Nurturing new woodland on brownfield sites is one of the priorities in the Yorkshire and Humber regional forest strategy.
"Over 35,000 trees have been planted at Cudworth Common and waymarked trails and wildlife habitats have been created.
Last year water voles were also found living at Little Houghton Marsh, near Darfield in Barnsley.
Since then the site has been developed as a wetland reserve, with a new 220-metre long ditch system which contains water all year round, and the water vole population is thought to have grown as a result.