Nadolo has scored 16 tries in 37 appearances since his Tigers debut in August 2020 and topped the club's try-scorers list with 10 last season.
"His decision to return home to Australia is one he has made with his family and one that we - as a club - support him in," Leicester boss Steve Borthwick (42) said in a statement.
Nadolo will be reunited with Waratahs coach Darren Coleman (49), who was an assistant coach for Fiji when Nadolo made his test debut in 2010 against Australia.
Former Canterbury Crusader Nadolo was contracted with the Waratahs in 2009 but unable to break into the first team.
“Who would’ve thought after leaving these doors 12 years ago I’d get another opportunity to be part of the club again," said Nadolo.
"I’m grateful to Darren and the board for having faith in me and giving me another opportunity."
Nadolo, who has scored 22 tries in 32 tests for Fiji, will join the Sydney-based Waratahs in December 2022 for pre-season training.
The much-improved Waratahs made the quarter-finals of Super Rugby this year after going winless through 2021.
"One of the things we identified from our season review was the need to add some size and power to our roster, and Nemani brings a lot of size and physicality which will add an extra dimension to our team," said Coleman.
"He’s motivated to get back to Sydney to have another crack at Super Rugby and push his claims to get in the Fijian test team for their 2023 Rugby World Cup campaign."
