The former England U21 international made 39 appearances for Manchester United before joining Royal Antwerp on loan to gain vital experience.
Luke, 23, then came under the guidance of Alan Pardew on loan at Reading, helping the Royals to a play-off finish in 2002/03.
The classy winger, who can operate on either flank, spent all of last season on loan at Burnley where he was a regular in the first team, scoring five goals.
Now Luke has rejoined Alan Pardew and sees this as a positive step towards making a return to the Premiership.
Alan says:
"I am delighted to have signed a player with great potential.
"Luke did well for me when I took him to Reading and I expect him to become an exciting and important part of the squad.
"He is certainly a player the fans will enjoy watching."