Baxter has previously been handed a five-month suspended sentence by the FA back in July of 2015 after testing positive for ectasy, and was subsequently dropped by Sheffield United.
The midfielder then returned to his boyhood club Everton on a one-year deal in the summer of 2017, but did not make a single first-team appearance and trained instead with the U23s.
However, the 26-year-old has now opted to pen a 12-month contract with the Latics, who he was formerly signed with before making the move to Sheffield. In his previous stint with Oldham, Baxter scored 17 goals from 50 outings.