The 21-year-old drops back down to the Championship following an unsuccessful stint with German giants RB Leipzig, who agreed to terminate his loan earlier this month.
Carvalho returned to Anfield having failed to register a single goal or assist in 15 matches for Leipzig in all competitions, but he was still the subject of interest from numerous English clubs.
Fulham - who sold Carvalho to Liverpool for £7.7m in 2022 - were believed to have been keen to bring him back to Craven Cottage, while Wolverhampton Wanderers, Leicester City, Southampton and Leeds United were also linked with a swoop.
However, Hull quickly jumped to the head of the queue with the promise of regular game time for Carvalho, and Tigers owner Acun Ilicali confirmed on Monday that an agreement had been reached.
The attacker's switch to the MKM Stadium is a straight six-month loan deal with no option or obligation to buy, and he becomes the second Liverpool player to make the switch to Hull this season after midfielder Tyler Morton.
"I couldn't be happier. Everyone is aware of Fabio's ability, his qualities as a young player," Hull manager Liam Rosenior told the club's official website.
"I have to give Acun and Tan so much credit for the work they've done to bring him here. We're building a reputation, not just in England but in Europe, for the way we develop players. Our style of play and ambition are really important factors in attracting players to the club.
"Fabio is excited to be coming here and I'm delighted to be working with him to the end of the season. Technically, he's outstanding. He can assist, score and run in behind. He's brave, quick, very balanced and takes the ball.
"The reason he's at Liverpool is because he's got enormous potential and I can't thank them enough for trusting us; Liverpool have seen the work we've done with Tyler Morton. Fabio's got the ability to make a real impact on our season and get us to where we want to be."
Carvalho previously excelled in the second tier of English football with Fulham, scoring 10 goals and setting up eight more in 36 matches during the 2021-22 Championship campaign as Marco Silva's side returned to the Premier League at the first time of asking.
The Portugal Under-21 international notched three goals in 21 appearances during his debut campaign with Liverpool, but he fell down the pecking order in the second half of the 2022-23 season and made just three starts for Leipzig after his loan move.
Carvalho - whose contract at Liverpool runs until 2027 - could make his debut for Hull in Friday's Championship clash with Norwich City, where victory would propel Rosenior's seventh-placed side into the playoff spots.