Dobson, 18, who joined the Hammers from north London Club Arsenal last summer, made 21 appearances for the Development Squad last season, playing a major role as they won the U21 Premier League Cup.
After completing the move, Dobson said: “I can't wait to get started. It's a massive opportunity for me and one I'm really excited about and I just hope I can get as many games under my belt as possible.
“Playing in League One is a big step up, but one I'm confident I can adapt to. Last season Walsall finished third, so you can see the ambition and the talent is there.
“I had a full season with the U21s last season which was very good, I enjoyed it a lot and now I feel ready for the next step. My plan was to go out on loan at some point this year, I just didn't know when. Now it's happened, I can't wait to get started."