The 20-year-old has put pen to paper on a two-year deal, plus a year’s option.
A product of Blues’ Academy, Townsend joined Blues at the age of 12.
A former pupil of Alderbrook School in Solihull, the stopper used to be a season ticket holder as a youngster along with his father.
Townsend has been a regular for the Club's U18 and U21 sides and has been on the substitutes' bench for a number of the first team's games, but has yet to make his senior bow.
Just over two weeks ago he captained Blues U21s to victory in the Birmingham Senior Cup final against Nuneaton Town - the first time that Blues had won the competition in seven seasons.
Away from Blues he has spent several spells out on loan over the past three seasons; including most recently a successful period at Conference side Lincoln City last season where he made 17 appearances in his second stint with the Imps.
With back-up goalkeeper Colin Doyle leaving St. Andrew's this summer, Townsend is expected to assume the role of the new number two stopper.