Douglas moves from Rovers, where he has been since the age of 16, for an undisclosed amount.
The 24-year-old Republic of Ireland international made his debut in the Football League of Ireland for Monaghan United eight years ago.
He joined Blackburn after having been on trial at Celtic and made his debut against West Ham in the Worthington Cup in October 2000.
A cruciate ligament injury in 2001 hampered his progress, and he was out of action for some time and in March 2003 was loaned out to Chesterfield for six weeks, where he played seven matches.
Then he joined Blackpool for three months, also on loan, where he played in 16 league games, scoring 3 goals.
On returning to Ewood Park he found himself playing on a regular basis and scored his first Blackburn goal in a 4-3 victory over Fulham. He earned his first international cap for Eire against Poland in April 2004.
His first-team chances at Ewood Park have remained limited and he jumped at the chance of a move back on a permanent three-year deal after making 47 appearances for the Whites last season on loan, chipping in with 5 goals.
"I need to play regularly so if that happens here then I'll be delighted," Douglas said on Leeds' official website.
"I really enjoyed my time at Leeds last season and this move will give me some stability."