The 30-year-old joined the Blades in the summer but made just one appearance, before being loaned out to former club Walsall last month.
He played seven times for the Saddlers and boss Dean Smith had been keen to retain his services.
Butler joins a Doncaster side that is currently one point above the relegation zone.

Tony Alliss died of gunshot wounds in woods near Stroud in 1991, following a long-running boundary dispute.
His neighbours - father and son Terence and Graig Maule - were cleared of murder and a civil claim for damages against them also failed.
Gloucestershire Police will see if there is any "compelling" new evidence that could lead to a reinvestigation.
A spokesman said: "The case was last subject to a comprehensive review by the constabulary five years ago resulting in a complete revisit of the forensic and ballistic issues by experts.
"Following the review the case was put before senior Crown Prosecution Service lawyers who decided the evidential test was not met."
Mr Alliss's family have welcomed the development as they have campaigned for years for the case to be reopened.
His sister-in-law Mary Alliss said she hoped it would lead to a full reinvestigation instead of "just a review of the same old evidence".
A judge at Bristol Crown Court ruled in 1991 that there was no case to answer, clearing Terence and Graig Maule of involvement in the killing.
Mr Alliss's son Leigh brought a civil action against the Maules in 2002, which was rejected by the High Court.
His widow Marilyn and brother Bob called in 2008 for a "not decided" verdict to be introduced into English law.

The company set up an office in Northern Ireland three years ago.
The new jobs aimed at legal graduates will be created over the next five years, taking its Belfast workforce to almost 500.
Enterprise Minister Arlene Foster said the announcement reflected the company's "very positive experience" in Northern Ireland.
She said the salaries would contribute almost Â£3m a year to the local economy.
Invest NI is offering grants of Â£860,000.

Graham, 21, played the last half an hour of Tuesday's 1-0 home defeat by Huddersfield, after 15 months out with a cruciate knee ligament injury.
"I thought he really livened the game up and got some bums off seats when he came on," Stearman, 29, told BBC WM.
"If he can stay fit then he'll be a force to be reckoned with next season."
Centre-back Stearman is approaching the end of his loan spell from Fulham, having originally left Molineux for Craven Cottage in 2015.
He returned to Wolves last summer but says he is waiting, like a large number of other players, on managerial decisions before knowing where his future lies.
"There's plenty of players up and down the country who don't quite know what's going to happen next year," he said.
"A lot of people are just waiting for the end of the season before they sort out what and who they need."

The officer was taken to hospital where his condition was described as "stable", a Merseyside Police spokesman said.
He said the force was investigating an "assault of a member of staff at HMP Altcourse on Wednesday".
The BBC understands the attack took place in a transfer area and the inmate was on remand facing serious charges.
Director for HMP Altcourse Steve Williams said: "We continue to support the officer and his family."
Doncaster Rovers have signed Sheffield United defender Andy Butler on loan until January.
[NEXT_CONCEPT]
Police are to review an investigation into the death of a man at his Gloucestershire farm 27 years ago.
[NEXT_CONCEPT]
The international law firm, Allen and Overy, is creating 100 new jobs in Belfast.
[NEXT_CONCEPT]
Fit-again winger Jordan Graham will add an extra dimension to Wolves' attack next season, according to team-mate Richard Stearman.
[NEXT_CONCEPT]
A prison officer has had his neck slashed by an inmate at a prison on Merseyside, the BBC understands.