The 21-year-old - who will take the number 24 shirt - will now join Neil Warnock's Championship side in their promotion charge until the end of the 2017/18 season.
A Serbia international, Grujić has made 14 first team appearances for Liverpool since joining from Red Star Belgrade two years ago and was highly rated upon his arrival.
(You may also be interested in - FanView: Liverpool's Emre Can Replacement Could Be a Lot Closer to Home Than You Think
However, he has seen limited game time under Jurgen Klopp and is behind the likes of Emre Can, Georginio Wijnaldum and club captain Jordan Henderson in the pecking order for places in midfield. Liverpool will now hope his loan move aids his development ahead of a return in the summer.
Speaking upon his arrival in South Wales, Grujić said: “This is a good opportunity for me, to play in a club that will be fighting until the end to get into the Premier League.
“To work with a manager like Neil Warnock is something I’m looking forward to. I’ve heard good things about him and when he spoke to me he said some good things about me and that I had a chance to play as part of his squad.
“I want to make the Cardiff City fans happy and look forward to playing in front of them. I’ve seen the team play a couple of times so I know what to expect.”
When asked about his own strengths the rangy midfielder was coy, but insisted he will do his best for the club as they chase an automatic promotion spot.
"I like other people to talk about my qualities, rather than myself," he added “But I can play across midfield and like to help in defence and attack. This is a strong team but I’m going to try my best to add something. I can’t wait to start this adventure. It’s really exciting.”