Scanlon returns to the Welsh capital having made eight appearances for Cardiff during the second half of last season, helping Brian Barry-Murphy's side win promotion back to the Championship at the first attempt after joining in February.
Liverpool tied him to fresh terms before sanctioning the move, with his previous deal due to expire next summer.
Cardiff open their Championship campaign at home to Welsh rivals Wrexham on Monday, having already beaten Swindon in the Carabao Cup. Scanlon, who joined Liverpool from Birmingham City as a 15-year-old in a reported £500,000 deal in 2020, previously spent time on loan at Millwall and featured for Liverpool's first team during their pre-season tour of the United States this summer before being left out of the matchday squad for the visit of Monaco to Anfield.
He will compete with Joel Bagan for a starting role at left-back, having been used across several positions during pre-season, including at centre-back and on the wing, as Andoni Iraola assessed his versatility.
"I'm ready to go, it's been a positive pre-season getting minutes," Scanlon said. "It was good for me. My body is ready for the season."
He added: "I'm grateful for the experience I've already had here and I can't wait to make new memories at the club."
The defender, capped by England up to Under-20 level, becomes Cardiff's third senior signing of the summer, following Nathan Trott's loan from Copenhagen being made permanent and midfielder Jack Moylan's arrival from Lincoln City.
Liverpool are expected to monitor his progress closely over the season as they weigh up their long-term options at left-back beyond current first-choice Milos Kerkez, with a productive campaign in Wales seen as a key step in establishing whether Scanlon has a future in the Liverpool first-team picture.