The 22-year-old former Leeds prodigy, who made his debut at Elland Road aged 16, is the Blades' fifth summer signing.
Blackwell, who worked with Walton during his time in charge at Leeds, said: "Obviously I had him at Elland Road, but he does seem to have lost his way a little bit.
"He and Aaron Lennon were going to be the next big thing in English football and I've brought him here to try and help him catch up a bit.
"His arrival helps us put together a squad we can work with because he can play midfield or in defence. Last season we often got caught out when injuries occurred and we had to use far too many loans."