The midfielder has initially joined Blues on a Standard Loan until the end of the 2016/17 campaign.
It will then become a permanent transfer on a three-year-contract, with a further year's option, for an undisclosed transfer fee.
Gardner is Gianfranco Zola's second signing of the January 2017 transfer window, following on from a permanent deal for Lukas Jutkiewicz.
The 30-year-old midfielder, who was previously signed by Blues for £3 million back in January 2010, spent a successful 18 months at St. Andrew's.
He made a total of 52 appearances and scored 11 times, before being sold to Sunderland in the summer of 2011 for £6 million following Blues' relegation from the Premier League.
He was also a key player in Blues' historic run to Carling Cup success in 2011.
During his three seasons with Sunderland, Solihull-born Gardner made a century of appearances and scored 14 goals, before moving back to the Midlands to link up with West Bromwich Albion.
To date, he has turned out 85 times for the Baggies and found the back of the net 14 times.
His last appearance for Tony Pulis' side was in mid-December when West Brom beat Swansea 3-1 in a Premier League home fixture.
Gardner, who will wear the number 12 shirt, will be eligible to play in Blues' Sky Bet Championship fixture against Nottingham Forest at St. Andrew's on Saturday.
An exclusive first interview with Gardner will be on bcfc.com later today.