Jacobs, who spent an unsuccessful season at Bidvest Wits in 2015/16, rejoined Livingston on a short-term contract last season but battled with injury.
He is now permanently back at the side where he previously spent eight seasons before leaving for Wits.
“Keaghan was very unlucky last season, just as he was getting back to full fitness he suffered another fracture in his leg,” Livingston coach David Hopkin said. “We did, however, manage to get him some game time near the end of the season and it was great to see him back in a Livingston FC shirt.
“Keags has signed on for the 2017/18 season with a clause in it that suits both parties with a view to a further year. That would take Keaghan into his testimonial year with the club and I’m sure I speak for every when I say it would be great to see him receive a testimonial game for everything he has given Livingston FC.
“There won’t be many players in this day and age who actually qualify for a testimonial at their club. Keaghan will and I’m delighted for the club and the player as it speaks volumes for both.
“On the playing front I’m gaining a very good player with Championship experience, I’m looking forward to seeing Keaghan get a pre-season under his belt and playing for Livingston FC in the Championship again.”
Clubs in Britain usually offer players a testimonial when they spend 10 seasons with the team. The testimonial match and associated activities are used to either raise money for them or for a charity of their choice.