Samir Nasri has revealed he is ready to open talks with Manchester City about extending his stay at the Etihad Stadium.
Taylor, who joined Town from Posh for an undisclosed fee in August 2012, returns to London Road on a deal until November 2, although Ipswich do boast an option to recall him after 28 days.
Taylor made his return to first-team action this season after a lengthy spell on the sidelines with a foot injury, although he has started just one Capital One Cup game and been used primarily from the bench by Town manager Mick McCarthy.
The loan will enable the Liverpool-born striker to get further first-team action under his belt.
McCarthy told Town's official website: "Tayls was out for a long time with his injury and needs to be playing games week in, week out.
"At the moment he's not been able to do that here. Going out on loan gives him that opportunity to get that match sharpness that he needs.
"Over the short-term the loan will benefit Tayls but over the long-term it will benefit Tayls and us."