Davis has made 14 appearances for the Cod Army since joining on loan in October, and recently agreed to extend his stay until the end of the season.
The 22-year-old signed for Leicester from Port Vale in 2014, but did not feature for the first team.
"I'm delighted that it's all been done now and I can concentrate on my football," he told the club website.
"I stated from the start that I'd be really interested in staying with the club, and I'm just over the moon to be here now."
The length of Davis' deal with Fleetwood has not been disclosed.
Find all the latest football transfers on our dedicated page.
League One side Fleetwood Town have signed defender Joe Davis from Leicester City for an undisclosed fee.