The former Burton Albion player joined the Millers on a two-and-a-half year deal in January 2018, but found his opportunities restricted at the AESSEAL New York Stadium last term.
He made just 13 appearances for Rotherham in the 2018-19 season, with his last league start coming back on New Year’s Day.
Bradford have now swooped to sign the 24-year-old, who will add an experienced option in the middle of the park for Gary Bowyer’s side.
“I was keen to sign as soon as I heard about the interest,” said Palmer. “Having spoken to Gary (Bowyer) I was sold straight away.
“I am at a massive club, with a fantastic fanbase. It draws you towards signing. The gaffer was a huge factor in me coming here. He is a manager who likes to play a certain way, which very much suits my style.
“The main aim is to get this club back to where it belongs and I am looking forward to hopefully being a big part of that.”
Bowyer added: “We are delighted to get this deal done. Matty expressed a big desire to join us, there were several clubs interested in taking him.
“Yet again, our fantastic supporters have played their part. Representing our fans really appealed to him and helped in his final decision.