The 22-year-old goalkeeper has inked a four years deal with Bramall Lane outfit.
Ramsdale, who started 37 top-flight games for the Cherries last season, including both fixtures against United.
Recall that Dean Henderson was Chris Wilder number one last season, but he was on loan from Manchester United.
Ramsdale joined the Blades in 2013, following a spell at Bolton Wanderers, and signed professional terms with United in May 2016.
Chris Wilder handed Ramsdale his senior debut in the FA Cup against Leyton Orient in November 2016.
Ramsdale, who has also captained England at U21s level, commented: "I'm very fortunate to be able to come back to a place I call home and I'm just excited to get going, see the lads I left behind and meet the new ones now in the team.
"I'm delighted, it wasn't an easy decision to leave Bournemouth, but when a club comes in for you, shows that faith it has and is willing to pay this sort of money then obviously I've got to do a lot to repay it, but my smile has been ear-to-ear since I walked back through the door."
Boss Wilder added: "The goalkeeping situation is something we have to make sure we get right.
"This is not about Dean (Henderson), it's about bringing Aaron in, but Dean was outstanding for us for two years. We know a lot about Aaron, we've watched him develop on loan at Chesterfield and then AFC Wimbledon and obviously we've watched him this season too.
"I'd like to thank the board for their backing given the situation. Aaron is certainly amongst the best young goalkeepers in this country and we are delighted to have him."
Ramsdale was named Bournemouth's Player of the Year for the 2019/20 campaign.
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