The 25-year-old only joined Latics in January from St Mirren, but featured only four times for Latics last season – including just one league start.
“I’ve tried to sign him a couple of times already so my admiration for him as a player is obvious,” said United manager Jack Ross.
Wigan Warriors: Which players are confirmed to be leaving and who is still out of contract?
Former Wigan Warriors man Brett Finch pleads guilty to sharing child abuse material
Rival boss on mooted Wigan Athletic striker exit
Wigan Warriors: Frano Botica states nothing could've prepared him for the conditions in England after first joining the club
European Championships: When does Keely Hodgkinson compete in the 800m?
“He fits the profile in terms of what we are looking for. We wanted to bring another attack-minded player to the middle of the pitch.
“We also wanted to bring that increased athleticism and technique so he ticks so many boxes.
“We want to get him playing, scoring and setting up goals for Dundee United and back into the international set-up.
“We can also help Jamie. Having been a mainstay of the Ireland squad for a season and a half, he has drifted away from that because he wasn’t playing regular football.
“He will play amongst other international-class players who have the same ambitions as him.”
“I was meant to sign for the gaffer maybe once or twice in the past so I guess it is third time lucky,” he said.
“It was basically the decisive factor. There were a few clubs interested but, speaking with the gaffer, I knew straight away that this is where I want to be and I am really looking forward to getting going.”
McGrath hopes the move will help him add to his six Ireland caps to date.
“Playing in the Scottish league got me there in the first place,” he said. “So hopefully playing as many minutes as I can and playing well, that I will get back in.
“It was a big factor in coming out on loan.
“Getting back in the national squad is definitely a goal of mine, but obviously you don’t get that if you are not playing well or we are not getting results.”
McGrath was involved in Latics’ pre-season fixtures against Bamber Bridge, a Liverpool XI, Oldham, Accrington and Sheffield Wednesday, and was an unused substitute in last weekend’s 0-0 Championship draw against Preston.