A brief statement from United confirmed the 24-year-old had been disciplined by the club, but the reasons behind his suspension were not made public.
Baxter has scored four goals in 24 league appearances for Nigel Adkins' side this season as they battle for promotion back to the Championship.
"Sheffield United football club can confirm that Jose Baxter has been suspended," a club statement read.
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"Procedures are being followed and no further comment will be made until the completion of these actions."
In May 2015 Baxter was suspended by the club after failing a drugs test, the former Everton youth player failing an out-of-competition screening.
The player denied any wrongdoing, but a Football Association investigation led to a five-month ban, three of them suspended.