Guedes, 21, joined PSG from Benfica in January 2017 for a reported €30m but spent just nine months at the club before being loaned to Spain last September.
Within his temporary switch to Valencia, he scored six goals and registered 11 assists in 38 appearances - which saw him called up to Portugal's 2018 FIFA World Cup squad.
His form in LaLiga reportedly attracted several offers from the Premier League but the three-time Primeira Liga champions has opted to return to the Mestalla.
What a WELCOME ???? pic.twitter.com/NXzcTmtNUt— Valencia CF English ???????? (@valenciacf_en) August 28, 2018