The striker had been heavily linked with a switch to the Sky Blues in recent days and the move has now been wrapped up.
City boss Steven Pressley said: "I've spoken about our need to add to the squad to freshen things up and give our players some help and Chris will certainly be able to do that.
"I'm fully aware of his capabilities having spent quite a lot of time watching him in the early part of his career at Rochdale and he made a lasting impression on me.
"His work-ethic and his eye for goal will certainly give us a boost and I'm looking forward to working with him."
Dagnall has managed a total of 10 appearances for the Tykes this term, six of which starts, and scored a solitary goal in the club's 5-2 Championship defeat at Blackburn.
The 27-year-old previously enjoyed spells at Tranmere, Rochdale and Scunthorpe before joining Barnsley in January 2012.
He has scored a total of 12 goals in 65 appearances for the South Yorkshire club and spent a brief time on loan at Bradford towards the end of last season.
Dagnall's departure comes on the same day as Barnsley re-signed forward Marcus Tudgay on loan from Nottingham Forest until early January.