Davies left boyhood club Everton at the end of last season following the expiration of his contract.
He made 179 appearances during his time with the Toffees but was keen to explore a new challenge.
The 25-year-old has signed a three-year contract at Brammal Lane.
"It was time for me to go [from Everton] and I'm really excited," said Davies.
"I'm made up to be here and can't wait to get started. I think it is a great project that the team have here and I'm full of enthusiasm and hunger to get going."
"The Premier League is the best league in the world so when Sheffield United came knocking I thought this was the place to be, playing against the best teams and the best players," Davies added.
"Tom is someone we have admired for quite a while and he's been desperate to come and play at Bramall Lane," said Blades manager Paul Heckingbottom.
"We are delighted because he is someone who provides valuable Premier League experience.
"He brings energy, a work ethic and a good physicality, and along with that Premier League experience, he will become a valuable asset to us."
Sheffield United lost 1-0 at home to Crystal Palace in their Premier League opener.
