The Bantams academy graduate was released at the end of the 2019-20 campaign, which ended on a points-per-game basis, but has returned to Valley Parade for a third spell.
The 22-year-old signed a short-term deal at Bradford in January and made seven appearances before the campaign was curtailed due to the coronavirus pandemic.
The upcoming season will City's second in League Two and Mottley-Henry is targeting promotion back into League One.
“It is a great feeling to be back. This period has been very tough and no one really knew what was happening," he said.
“The supporters are brilliant to me and I get nothing but good vibes from the club. I am ready to do everything to push on and get as many goals and assists as I can.
“This is a big club and we definitely do not deserve to be in League Two. We are going to prove that this season, push up the table and get promoted.”
Bradford manager Stuart McCall was always eager to retain Mottley-Henry and is glad to see the midfielder extend his stay.
“We were always keen to keep hold of Dylan at the end of last season, if we could, so are delighted to have been able to do so," added McCall.
“He is a fast, skilful lad who is very direct, so fits into the way we want to play really well.
“His attitude and desire is spot on so we are happy to have him in the squad and are looking forward to working with him again this season.”