The 20-year-old was on loan to the Steelmen from Birmingham City last season.
Kerr, who came through Motherwell's academy before joining Birmingham in 2009, has said that he is looking forward to working under manager Stuart McCall.
"I am absolutely delighted to sign for Motherwell," he told Sky Sports News. "When I was up on loan last season, I knew even then this is the place I wanted to be when my contract at Birmingham City expired.
"I am really grateful for the manager for showing faith in me. My aim is to try and establish myself as a first-team player. The second half of last season was interrupted by injuries so I am hoping to stay injury free and play some more regularly this season.
"Pre-season has been great so far. I just can't wait for the games to get going again."
Kerr made 18 appearances for the Scottish Premier League club last season.