The 19-year-old Fifer grew up as a Flyers fan and made his first appearance for the club last season after joining in December.
Spence, from Glenrothes, had been playing with Polish side Opole HK and also had three years in Canada at the Ontario Hockey Academy before starting his pro career.
He said: “I am looking forward to getting back into action.
"Joining my childhood team halfway through the year and gaining valuable experience was a dream come true.
“I was delighted when Flyers contacted me and asked me back for the upcoming season.
“It was an opportunity that couldn’t be denied.”
Fife Flyers Head Coach Todd Dutiaume thinks Spence has a real future in the game.
He said: “Another young prospect, James returned back to Fife part way through the season last year and I was impressed by the strides he had made in his game.
“Hungry to secure a regular spot in the line-up, Spence has already started his off-ice training that is crucial to realising his goals.
"I feel this young man has a bright future in a Flyers uniform.”