The Bills also re-signed four exclusive rights free-agents, namely tight ends Nick O'Leary and Logan Thomas, cornerback Lafayette Pitts and defensive end Eddie Yarbrough.
Kerley rejoins the AFC East after making two different stints with the New York Jets, who selected him with a fifth-round pick in the 2011 NFL Draft.
The 29-year-old recorded 22 receptions for 217 yards and a touchdown in eight contests with the team last season after serving a four-game suspension due to violating the league's rules on performance-enhancing drugs.
Kerley adds depth to the position and could see time in the slot for the Bills, who are expected to feature Kelvin Benjamin and Zay Jones at wideout.
Palepoi spent the last four seasons with the now-Los Angeles Chargers and recorded 53 tackles and one sack. The 27-year-old likely will provide a depth option behind Star Lotulelei and Kyle Williams.
O'Leary, 25, notched 22 receptions for 322 yards and two touchdowns in 15 games last season.
Thomas, 26, had seven catches for 67 yards and a score in 12 games in 2017.
Pitts, 25, was claimed off waivers by the Bills in October and appeared in 10 games, mainly on special teams.
Yarbrough, 24, collected 34 tackles and one sack in 16 games last season.