The 24-year-old was in Durham's academy in 2010 and will replace South Africa opener Stephen Cook from late June until the end of the campaign.
Latham, who played for Kent in 2016, hit a career-best Test score of 177 against Bangladesh earlier this month.
"He has potential to build on his excellent record up to now and we are looking forward to welcoming him back," Durham head coach Jon Lewis said.
Christchurch-born Latham has scored 5,322 first-class runs at an average of 41.90, and will be available in all formats for the north-east county.
The left-hander made 374 runs in nine innings in Division Two of the County Championship for Kent last summer, and 128 runs, averaging 21.33, in the T20 Blast.
Durham have signed New Zealand batsman Tom Latham for part of the 2017 season.