Allen, 25, who joins the Royals on what the club describe as a long-term deal, could make her debut against Arsenal in the Continental Cup on Saturday.
Her Blues debut also came against Arsenal in 2013 in what was an all-English Champions League semi-final.
Allen's arrival comes after Bonnie Harwood left Reading to join Millwall.
Reading have signed midfielder Remi Allen from Women's Super League One rivals Birmingham City for an undisclosed fee.