The club have the option of extending the deal by a further 12 months if the 20-year-old impresses.
Caldwell, who scored two goals for Hibs in 21 appearances, including a last-minute winner against Hearts at Tynecastle, last played for the Easter Road club in November last year.
The striker joined Alloa on loan in January, after a touchline spat with then Hibs manager Terry Butcher, who brought Caldwell on as a substitute in a cup match against Ross County only to sub him 10 minutes later.
He scored on his debut for Alloa - a 3-1 loss at the hands of Queen of the South - and played nine matches in total for the Recreation Park side.
Caldwell is the Buddies’ fourth summer signing after Mark Ridgers, James Marwood and Ellis Plummer.