[proofplan]
We parametrize the unit circle by drawing lines of rational slope through the rational base point $(-1,0)$. First we verify directly that every value of the displayed formula is a rational point on the circle. Then we take an arbitrary rational point different from $(-1,0)$, form the rational slope $t = Y/(X+1)$ of the line through $(-1,0)$ and the point, and solve the resulting quadratic intersection equation. The excluded point is exactly the point obtained from the vertical line through $(-1,0)$.
[/proofplan]
[step:Verify that the displayed formula gives rational points on the unit circle]
Let $t \in \mathbb{Q}$. Since $1+t^2 \neq 0$ in $\mathbb{Q}$, define
\begin{align*}
X_t &:= \frac{1-t^2}{1+t^2},
&
Y_t &:= \frac{2t}{1+t^2}.
\end{align*}
Then $X_t,Y_t \in \mathbb{Q}$. We compute
\begin{align*}
X_t^2 + Y_t^2
&=
\left(\frac{1-t^2}{1+t^2}\right)^2
+
\left(\frac{2t}{1+t^2}\right)^2 \\
&=
\frac{(1-t^2)^2 + 4t^2}{(1+t^2)^2} \\
&=
\frac{1 - 2t^2 + t^4 + 4t^2}{(1+t^2)^2} \\
&=
\frac{1 + 2t^2 + t^4}{(1+t^2)^2} \\
&=
\frac{(1+t^2)^2}{(1+t^2)^2} \\
&= 1.
\end{align*}
Thus
\begin{align*}
\left(\frac{1-t^2}{1+t^2}, \frac{2t}{1+t^2}\right) \in C(\mathbb{Q})
\end{align*}
for every $t \in \mathbb{Q}$.
[/step]
[step:Recover the parameter from any rational point other than $(-1,0)$]
Let $(X,Y) \in C(\mathbb{Q})$ and assume $(X,Y) \neq (-1,0)$. Since $X^2 + Y^2 = 1$, if $X=-1$ then $Y^2=0$, so $Y=0$, contradicting $(X,Y) \neq (-1,0)$. Hence $X+1 \neq 0$.
Define the rational number
\begin{align*}
t := \frac{Y}{X+1}.
\end{align*}
This is the slope of the non-vertical line through $(-1,0)$ and $(X,Y)$, and it gives
\begin{align*}
Y = t(X+1).
\end{align*}
Substituting this expression into the equation $X^2+Y^2=1$ gives
\begin{align*}
X^2 + t^2(X+1)^2 &= 1.
\end{align*}
Expanding and moving all terms to the left-hand side,
\begin{align*}
(1+t^2)X^2 + 2t^2X + t^2 - 1 &= 0.
\end{align*}
We factor the left-hand side:
\begin{align*}
(1+t^2)X^2 + 2t^2X + t^2 - 1
&=
(X+1)\bigl((1+t^2)X + t^2 - 1\bigr).
\end{align*}
Since $X+1 \neq 0$, the second factor must vanish:
\begin{align*}
(1+t^2)X + t^2 - 1 &= 0.
\end{align*}
Solving for $X$ gives
\begin{align*}
X = \frac{1-t^2}{1+t^2}.
\end{align*}
Using $Y=t(X+1)$, we obtain
\begin{align*}
Y
&=
t\left(\frac{1-t^2}{1+t^2}+1\right) \\
&=
t\left(\frac{1-t^2+1+t^2}{1+t^2}\right) \\
&=
\frac{2t}{1+t^2}.
\end{align*}
Therefore every rational point of $C(\mathbb{Q})$ different from $(-1,0)$ has the displayed form for the rational parameter $t = Y/(X+1)$.
[/step]
[step:Account for the exceptional vertical line through $(-1,0)$]
The point $(-1,0)$ is rational and satisfies
\begin{align*}
(-1)^2 + 0^2 = 1,
\end{align*}
so $(-1,0) \in C(\mathbb{Q})$.
It is not obtained from a finite slope through $(-1,0)$ because the expression
\begin{align*}
\frac{Y}{X+1}
\end{align*}
is undefined at $X=-1$. Geometrically, this is the vertical line through $(-1,0)$. Its intersection with the unit circle is only $(-1,0)$: if $X=-1$ and $X^2+Y^2=1$, then
\begin{align*}
1+Y^2=1,
\end{align*}
hence $Y=0$.
Combining the parametrized points from the first step, the recovery argument from the second step, and the exceptional point just handled, we obtain
\begin{align*}
C(\mathbb{Q})
=
\left\{
\left(\frac{1-t^2}{1+t^2}, \frac{2t}{1+t^2}\right) : t \in \mathbb{Q}
\right\}
\cup
\{(-1,0)\}.
\end{align*}
This proves the theorem.
[/step]