Butler, 26, will spend the rest of the season at the Seasiders from the League One side Huddersfield Town.
The centre-back has started 10 league games for Huddersfield this season.
The Tangerines needed options in defence as Ian Evatt and Rob Edwards are suspended for Saturday's trip to Cardiff City.
"It all happened really quickly," Butler told Blackpool's official website.
"I'm really happy with the move. It's a weird one because I've gone a step up, but it's something I'm hoping to thrive on. It looks a good club and I'm happy to be here."
Lee Clark, the Huddersfield manager, was happy for him to leave as he was not a regular in his first-team plans.
He joined the Terriers in the summer of 2008 after turning down a contract to stay at Glanford Park. He is tied to the Yorkshire club until 2011.
Jim Goodwin also moved to Huddersfield from the Iron that summer, he has also been on the move this week with a one-month loan to Oldham Athletic.