The 21-year-old was introduced to the club's first team by former manager Louis van Gaal in 2015, and has gone on to make 10 appearances for the Red Devils.
"I'm buzzing to be here and can't wait to get started. Scunthorpe really wanted me to come here and I couldn't really turn it down," the youngster told Scunthorpe's official website.
"I've been at Manchester United since I was six years old and I've progressed all the way through. I managed to get my opportunity in the first team in the 2015/16 season, that was a great season for me and kick-started my career.
"But I need to play regular games and I'm at the age where I should be playing regular first-team football. I know it'll be more a lot more physical in League One, so I'll have to see how I adapt to that and hopefully I can impress."
Borthwick-Jackson completed loan spells in the Championship with Wolverhampton Wanderers and Leeds United before dropping down to the third tier with his latest move.