The club have the option to extend the winger's stay for a fourth year and Terriers boss Lee Clark is delighted to have the 19-year-old back at the club after a successful spell on loan at the Galpharm Stadium last season.
"When the opportunity arose to bring Danny here permanently we quickly decided to try and move on it. Thankfully we have now agreed everything," Clark told the club's official website.
"We know everything about the player and he knows everything about us. We know he can be a top player for many years to come; he's still very young so he can develop even more.
"It's important that any players joining us buy into what we are trying to do and wants to be here.
"When we agreed terms with Bolton, the big thing for me was that Danny and his agent came in and made it clear that he had loved his time here and wanted to come back."