The 22-year-old made the move to The Hawthorns from Rochdale in August 2010 before rejoining them on loan for the 2010/11 season.
Dawson has played three times for West Brom this season but has been given the opportunity to gain more playing time at Bolton, a move which has delighted Freedman.
"I've worked very hard to try and get Craig to come on board. He had four or five different options and it is good news that he wants to come and play for us," the Trotters boss told the club's official website.
"When I spoke to him he indicated that he was very keen to come here. He made the decision - and fair play to West Brom for letting him make that decision - because he wants to come to a club where he feels he can improve.
"I want to sign players that want to be here and Craig has decided that this move gives him the chance to improve. That's exactly the kind of player I want."
England U21 international defender Dawson is cup-tied and is therefore unable to feature against Everton on Saturday, but may make his Bolton debut against Watford at Vicarage Road in the Championship on 2 February.
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