The former Derby County man, who can also play right-back, has signed a two-year deal at Huish Park.
Bailey came through Crewe Alexandra’s prestigious Academy and made 55 first-team appearances before transferring to the Rams in 2010.
He spent four years at Pride Park and following two successful loan spells with Coventry City, moved to Barnsley ahead of the 2014/15 campaign.
The experienced 28-year-old featured 29 times for the Tykes but after a solitary year at Oakwell opted for a new challenge in India with Pune City.
During his time in Asia, Bailey played against world stars such as Nicolas Anelka, Florent Malouda, Simao and Helder Postiga.
He then sampled life at Canadian outfit Ottawa Fury before returning to England to sign for Carlisle United on a short-term deal until the end of the 2016/17 campaign.
Bailey helped the Cumbrians reach the Sky Bet League Two play-offs, featuring in both legs, and was offered a new contract but has chosen to move on to pastures new with Yeovil.
“I want to thank everyone for their involvement in this signing,” boss Darren Way told YTFC.net.
“The midfield jigsaw is now complete and we have a few finishing touches to make elsewhere.
“I’ve been chasing James all summer and negotiations have been going on since the season finished, so to get him signed on and committed to the green and white cause is fantastic for the football club.”
Would you like to sponsor James this season? Please contact Commercial Manager Dave Linney on 01935 847872 or email DLinney@ytfc.net.