Bolton have completed the capture of former Crewe striker Max Clayton on a three-year contract.
Felix Magath has been sacked by Fulham, with Kit Symons taking over as caretaker manager.
Bailey arrives at Oakwell on a free transfer after leaving the Rams this summer and he has put pen to paper on a two-year contract.
The Tykes have pinched the 25-year-old from under the noses of South Yorkshire rivals Doncaster, who Bailey had been training with as recently as this week.
"I'm really pleased to sign and can't wait to get going," Bailey told the club's official website.
"The manager has outlined his plans and they're really exciting. I want to be a part of what he is building here and get back into the Championship."
Bailey came through the academy at Crewe and went on to make 55 first-team appearances for the Alex. In May 2010, he came to the attention of Derby.
He played 65 times for the Rams and during his time with the Sky Bet Championship club undertook a 37-game loan stint at Coventry in the 2012/13 season.