Bullard joined Hull for a club record £5m in January 2009 and has scored six goals in 23 appearances but has suffered badly with injury.
The 32-year-old former Fulham player becomes Ipswich manager Paul Jewell's first signing since arriving at Portman Road earlier this month.
Jewell told the Ipswich website: "He is a good technician and a good passer of the ball. He's also a great character."
It is the second time that Jewell has signed Bullard, after taking him to Wigan from Peterborough in 2003.
BBC Radio Humberside understands that under the terms of the deal Hull City will continue to pay part of his wages, estimated at £45,000 per week.
"I know Jimmy well from our days at Wigan and he will give us something different in the middle of the park," Jewell added.
"He has played in the Premier League and has a lot of experience."