The 30-year-old has joined for the rest of the season with a fee agreed for a permanent return to St Andrew's in the summer.
Gardner spent 18 months at Birmingham between January 2010 to June 2011 and won the League Cup.
Albion boss Tony Pulis told the club's website: "Craig has done a great job for me and the cub and we were certainly not in any hurry to see him leave.
"But he is desperate to play first-team football, which I could not guarantee, and this is a terrific opportunity for him at Birmingham.