The 32-year-old has penned a two-and-half-year deal at The Priestfield Stadium.
Banks was released by The MK Dons and that allowed him to join The Gills for a second time in his career - after previously playing for the Kent side from 1993 to 1995.
"I am delighted Steve has agreed to join us again," said player-manager Andy Hessenthaler.
"We know all about his ability, probably more from the games he has played against us in recent years than from the time he played for us.
"He will be a great addition to the squad, not just by solving our immediate problem but in the longer term as well."
Gillingham have also announced that young defender Richard Rose has put pen-to-paper on a new two-and-half-year deal.
Meanwhile, Wimbledon have signed Scott Bevan from Southampton until the end of the season.
The 24-year-old had been on loan at Wycombe, but he has now joined The MK Dons. Wimbledon moved for Bevan after confirming Banks's release.
