Wallace, 22 has become the Blades seventh signing of the summer following the transfers of; Jamal Campbell-Ryce, Andy Butler, Chris Basham, Marc McNulty whilst Ben Davies and Chris Porter have also agreed deals for next season.
The Liverpudlian who had been linked with the Blades for over a week has put pen to paper on a three year deal and plays as a central midfielder.
Blades boss Nigel Clough told sufc.co.uk; "James is another good young midfielder to add to our ranks, he's had a couple of injury problems in the last 12 months but he was the driving force behind Tranmere's fine start a couple of seasons ago. James is one of the best midfielders in the league. We are delighted to get him; it adds extra competition for places."