The 19-year-old has agreed the move to Nigel Pearson's side as he seeks to gain more first team experience following a loan spell with Scunthorpe last season in which he made nine appearances.
"I am really pleased to have signed and can't wait to get started," Hobbs told Liverpool's official website.
"Liverpool have some world-class centre backs so I spoke to the boss and he said I was free to go out on loan and gain some experience.
"Leicester showed their interest and I had no hesitation in coming here. This is a massive club with a good manager and top class Premier League facilities.
"I want to help this club get back to The Championship at the first time of asking."