The midfielder is no stranger to Shrews having enjoyed two months on loan over the second half of last season, making 15 league starts and helping the Shropshire club earn automatic promotion from League Two.
McAllister has made 17 appearances for the Blades this season, starting 12 of those, and bagged the only goal of the game when the two sides met on the opening day. But the South Yorkshire club have opted to let him go.
Manager Graham Turner told Town's official website: "I think initially it was a surprise that Sheffield United would sell him as he's figured in a lot of their games. But I think the fact he has been here, he knows all about us, knows the professional attitude, the work ethic here, I think it did help in his decision to join us."
McAllister 24, has put pen to paper on a two-and-a-half-year deal at the Greenhous Meadow.
Meanwhile, Turner is hopeful of this week completing an extension to defender Cameron Gayle's loan stay from West Brom, while he is also waiting to hear from Rochdale as to whether they want to extend Terry Gornell's stay at Spotland.
The Shrews striker has spent the past two months on loan at the League Two club, scoring five goals.
"I've had discussions with Rochdale but we're no further forward on that one," Turner said. "His loan finished on Saturday and there is a chance he will go there and stay longer at Rochdale. There's a chance he will be back with us on Thursday. I don't know Rochdale's intentions right at this point."