The 22-year-old has put pen to paper on a two-and-a-half-year deal at Kenilworth Road, keeping him at the club until the end of the 2019-20 campaign.
Jones failed to make a single appearance for Liverpool's senior side during his seven years at the club, having joined from Plymouth Argyle in 2011.
The England Under-20 international does have experience of the lower leagues, though, having spent time on loan at Cheltenham Town, Accrington Stanley, Blackpool and Swindon Town.
"I found out the move was a possibility about three days ago, it got followed up and here I am today. I want to play regular first-team football. I've been in the Under-23s at Liverpool for quite a while now and I wanted a new challenge, and I thought Luton was the right club for me," Jones told Luton's official website.
"I spoke to the manager yesterday and he explained how the club wants to move forward and has ambitions, and that was a big factor in me coming here.
"Nathan has got a massive passion for winning, and for improving players as well. I've come here to play as much as I can and do as well as I can. I'm really looking forward to it. Hopefully we can push for promotion and get into League One for next year."
Manager Nathan Jones added: "We were looking to bring some defensive cover in for the short-term with Scottie Cuthbert being out and Johnny Mullins picking up an injury, but when Lloyd became available, he's one that we'd earmarked as being able to take forward longer term.
"He's young enough that we can improve him and develop. He's got good pedigree and has had some good loans already, and he's one we believe can progress with the club. Technically he's very good. He's a great size, so now we've just got to make him a Luton player.
"He's been out in League One and League Two already, so he's not untried. He's come from Liverpool and I know the coaching he gets there, and that was a big factor in us taking him for longer. We could have done someone slightly more short-term, just to get us through to the end of the season, but we don't always like to do that. So when Lloyd became available, it was an easy decision for us. We're delighted to have him."
Jones could make his debut for the League Two leaders during Saturday's home game against Exeter City.