Bruce told the club's official website: "Matthew is a very talented defender and has been coveted by a number of top-flight clubs recently, so I'm very pleased to have brought him here.
"He will add to our options across the back ahead of some very important games. I'm sure he will prove to be a great signing for the club."
York-born Kilgallon is a central defender by trade, but can also operate at left-back, an area in which Bruce has only one senior specialist, George McCartney.
However, he will be unavailable for Saturday's FA Cup fourth-round trip to Portsmouth having already played in the competition this season for the Blades.
His capture represents something of a coup for Bruce with Everton among a series of other Barclays Premier League clubs reportedly chasing the player in recent weeks.
He was also one of Newcastle boss Chris Hughton's top targets, although the Magpies were unable to strike a deal despite making an early move to secure his services with his deal at Bramall Lane due to run out at the end of the season.
Indeed, Kilgallon indicated that it was his intention to stay at Sheffield United and help in their promotion campaign until Sunderland came calling.
He emerged from the ranks at Leeds, where he made 95 senior appearances before making a £2million switch to the Blades in January 2007.
Player of the year for 2008-09, he made his 100th appearance for the club earlier this season.
Bruce will now get to work on his remaining targets with Wigan's Maynor Figueroa and Hamburg's Guy Demel on his list.
Barclays Prem Top Goalscorer 09/10: Bent, D. 5/1