Young, 19, has spent the last two seasons on loan at Salford City in League Two, making 77 appearances for the Ammies.
In his most recent spell he kept 15 clean sheets, helping Salford reach the League Two play-off final.
Sunderland rewarded that run of form with a new long-term contract last month, tying him to the Wearside club until 2030.
Huddersfield sporting director Chris Markham said the club were thrilled to land one of the most promising young stoppers in the country.
"Matty is one of the most highly rated young goalkeepers in the country, and we're delighted to bring him to the club," Markham said.
"His experience at both club and international level is exceptional for his age, and those who've worked closely with Matty cannot speak highly enough of his attitude, application and desire to improve, which are all characteristics we're keen to see in every Town player across the club.
"Strong in every key area for a goalkeeper and blessed with natural size and presence, we're thankful to Sunderland for trusting us with the next stage of Matty's development and hope to
see him join a long line of young Premier League talent who've cut their teeth with us in West Yorkshire."
Young received his first England under-21 call-up last season, adding international pedigree to a growing senior record built across two loan spells in the fourth tier.
He becomes the second arrival at the Terriers this summer, joining striker Ashley Fletcher, who signed on a free transfer earlier in the window.
Huddersfield narrowly missed out on the League One play-offs last season and will be aiming to go one better in 2026-27, with Young set to challenge for the number one jersey as the club push for promotion.