The 23-year-old, capped by Scotland at both Under-19 and Under-21 level, has put pen to paper on a three-and-a-half year deal.
Blades manager Danny Wilson, who beat off interest from several Championship clubs, said: "We're absolutely delighted to have secured a deal to bring Jamie to Sheffield United because the lad is a real talent.
"He's quick, strong on the ball and a good runner in possession. He will put defenders on the back foot and will offer us great versatility in forward positions.
"Jamie has a real eye for goal and will give us that bit extra quality in the final third that we need to unlock some stubborn League One defences."
Glasgow-born Murphy, who scored 11 goals in 28 appearances for Stuart McCall's side this season, made almost 200 appearances at Fir Park since making his Motherwell debut at the start of the 2006/7 season.
He will go straight into Wilson's squad for this Saturday's FA Cup third-round clash at Oxford.