The 22-year-old shot-stopper has signed a five-year deal, keeping him at the Etihad Stadium until June 2030.
"Rejoining City is such special and proud moment both for me and my family," said Trafford, via the club's official website.
"I always dreamed that one day I would be able to come back to Manchester City.
"This is the place I call home - it's a truly special football club with fantastic people who make it such a unique place to work and play.
"I am also so very excited and honoured to have been given the opportunity to work under Pep and with such a world-class group of players.
"I am still very young and hungry to keep learning and improving - and I know there is no better environment than Manchester City to help make me become the best goalkeeper I can be.
"I also cannot wait to play in front of the amazing City fans for the first time and will do everything I can to help this great club look to achieve even more success."
The move marks an emotional return for Trafford, who spent nearly eight years in City's Academy before departing for Burnley. His return comes after two impressive seasons at Turf Moor, where he made a significant impact between the posts.
Trafford first joined Burnley ahead of the 2023/24 campaign under then-manager Vincent Kompany. Despite the club's relegation in his debut season, the young keeper earned widespread praise for his performances.
Under new manager Scott Parker the following year, Trafford played a pivotal role in Burnley's immediate return to the Premier League.
His 2024/25 season was especially outstanding. Trafford kept 29 clean sheets in 45 Championship matches, conceding just 16 goals - a feat that equalled the record for most shutouts in a single English league season.
At international level, Trafford is a regular for England's Under-21s, further underlining his rising profile in English football.
Jack Grealish has returned to Manchester City for the start of pre-season training, with the midfielder's future at the Etihad Stadium increasingly uncertain amid interest from Premier League rivals.
Manchester City have reportedly tabled a colossal 170 million euro offer to re-sign Cole Palmer from Chelsea, aiming to bring the attacking midfielder back to the Etihad Stadium, according to recent reports.
Manchester City have secured the signature of 18-year-old Norwegian star Sverre Nypan, beating out fierce competition from Arsenal to land the highly rated midfielder.
Manchester City midfielder Maximo Perrone has completed a permanent move to Serie A side Como in a deal worth up to 15 million euros.
