Wilson, 22, has bounced back from a serious knee injury suffered in 2016 to star for the Red Devils' Under-23 side.
And he will now have the chance to prove himself in the Championship with the Blades.
"Manchester United striker James Wilson has joined Championship side Sheffield United on loan for the remainder of the 2017/18 season," the club confirmed on their official website.
"The English centre-forward came through the ranks of the Academy and famously scored twice on his first-team debut, under the interim management of Ryan Giggs against Hull City in May 2014, before going on to net two more goals during Louis van Gaal’s spell as manager.
"This will be Wilson's third loan spell in the Championship, after bagging five goals in 27 appearances at Brighton & Hove Albion during the 2015/16 season, prior to his spell at Derby being cut short by the aforementioned injury."
Blades boss Chris Wilder, meanwhile, is confident that Wilson can boost a side that are currently seventh in the Championship and aiming for promotion after going up from League One last term.
“James has a fantastic pedigree having come through the ranks at Manchester United and importantly has some good Championship experience," Wilder told the official Sheffield United website.
“He says he is raring to go and is the fittest he has ever been, so couple that with his undoubted ability and desire to impress, than I’m sure he will improve the group.”