Davies joins midfielder Craig Gardner and defender Liam Ridgewell as former Villa players plying their trade across the city.
The former England Under-21 player had looked set to rejoin Leicester for a second loan spell but has instead opted for St Andrew's and another chance at Premier League football.
Blues' search for reinforcements up front also looks to be heading for a successful conclusion with Nigeria striker Obafemi Martins due to arrive for a medical on Sunday.
Former Newcastle forward Martins is close to joining Blues on a six-month loan spell from Russian side Rubin Kazan and will fly into the West Midlands this weekend.
Centre-half Davies, 25, has signed a three-and-a-half-year deal at St Andrew's and though he is not cup tied, he will be unavailable for tomorrow's FA Cup match at home to Coventry.
He is, however, cup-tied for the Carling Cup final later this month.
Earlier, Villa boss Gerard Houllier said: "He is on his way out to Birmingham. He had the option to go to Leicester or to Birmingham and he has opted for Birmingham. I think he is sold.
"He is a nice lad but, as you know, we have four centre-backs in James Collins, Richard Dunne, Carlos Cuellar and Ciaran Clark.
"He was not getting enough time to play. I understand that."