The 21-year-old midfielder scored nine goals in 38 Championship appearances during a loan spell at Nottingham Forest last term.
According to the Blades, Dowell will be available from January 2, a day after Chris Wilder's squad to face Wigan Athletic. However, he could make his debut in their FA Cup match at home to Barnet next Sunday.
"We tried to sign Kieran in the summer when David Brooks left [to join Bournemouth]. Kieran is a talented player, left-footed, brings a balance to the group and gives us competition at the top of the pitch," Wilder told the club's website.
"He had a great loan at Nottingham Forest last season and was in and around the first team at Everton in the summer when we tried to make a move then.
"We're looking for him to replicate what he did at Forest and hopefully a little bit more, we feel Kieran will add goals and assists to the group."
Although they have only won two of their past last five league games, the Blades are fourth in the Championship and just seven points outside the automatic promotion places.
Dowell's arrival could result in Liverpool loanee Ben Woodburn leaving the club, having only featured once in the Championship.