Flitcroft, 33 completes the move to the club that have been chasing him for a while.
The former City star becomes the Blades second January transfer window signing after sealing Chinese International Zhang Yeohun on loan until the end of the season.
Having signed from City in March 1996 for £3.5M and leaving on 12 January 2005 he has made 261 (+ 20 as sub) appearances and scored 20 goals during his time at Edwood Park.
Blades manager Neil Warnock said: "He brings leadership to the midfield. He's seen it all and done it all with Blackburn.
"When we tried to bring him here in November, he felt he could get back in the Blackburn team."