The 28-year-old, who was a free agent after his contract with Birmingham City expired during the summer, has signed a deal at Goodison Park until the end of the season.
McFadden initially joined the Toffees in 2003 from Motherwell, scoring 11 goals from 109 appearances.
A £5m move to Birmingham followed in 2008 and he scored 13 goals in 82 outings for the Blues.
However, a knee injury prevented him from featuring during the 2010/11 season and at the end of the campaign Birmingham decided not to renew his contract.
The striker arrived at Everton's training ground earlier today for discussions and a medical.