The 22-year-old defender moved from Rochdale to the Midlands in August 2010 but has made just 15 appearances for the Baggies first-team. However, Dawson, who represented Team GB in last year's London Olympic games, will now head to Lancashire to help shore up Dougie Freedman's Bolton defence.
“I’ve worked very hard to try and get Craig to come on board," the manager told club's official website.
"He had four or five different options and it is good news that he wants to come and play for us.
“When I spoke to him he indicated that he was very keen to come here. He made the decision – and fair play to West Brom for letting him make that decision – because he wants to come to a club where he feels he can improve.
“I want to sign players that want to be here and Craig has decided that this move gives him the chance to improve. That’s exactly the kind of player I want.”