Green played five games on loan at the League One club at the start of the season, and despite his previous stay in Milton Keynes being limited to a month, the former Dagenham & Redbridge player was impressed with the setup under Karl Robinson.
The 25-year-old told the club's official website: "I'm delighted to be here. When I knew that I wasn't being kept on at Charlton, MK Dons were the club that I wanted to come to. Luckily the club wanted me too so everyone's happy.
"There was a bit of interest but MK Dons stood out because of the way that the team plays football, the manager, who is great, the players, who I know from my spell last year, and the stadium. I can't wait to get started."
Green leaves Charlton having scored six times in 74 appearances during his three-year spell with the club.