As part of the deal, 19-year-old Oxford defender Sam Long joins Conference side Harriers on loan until 1 January.
Dunkley, 22, came through the youth ranks at Crewe before joining Harriers in 2012 after a spell at Hednesford.
"It's a good move for myself. I'm over the moon the gaffer has taken a chance on me," said centre-half Dunkley, who has made 19 appearances this season.
"It's a big club and they are striving for big things and to get into League One.
"As it's a higher level it will be a faster tempo but it's up to me to come here and work hard and make sure I'm ready for the test."
Dunkley, who has agreed a two-and-half-year contract which will officially start in January, is determined to help the U's climb out of League Two.
"It's a big club and shouldn't be where it is at the moment," Dunkley told BBC Radio Oxford.
"There wasn't any need to sell me the club. The gaffer showed me the ambitions of the club. It was a no-brainer."
Harriers assistant manager Mark Creighton, who is a former U's defender, called Dunkley a "fantastic prospect".
Creighton added: "He is commanding in the air, attacks things in both boxes and scores a few. He is a fantastic professional and young so Oxford will get some good years out of him.
"He thoroughly deserves his opportunity to join a great club like Oxford. His key attribute is his willingness to win."
Oxford United have signed Kidderminster defender Chey Dunkley on loan with a view to a permanent deal in January.