The 31-year-old, capped eight times by the Republic of Ireland, was a free agent after playing in Denmark for FC Copenhagen.
Foley has made a total of 388 appearances in English football for Luton, Wolves and Blackpool.
He comes in following the departure of fellow full-back Jonathan Parr.
The move reunites him with Ipswich manager Mick McCarthy, who signed Foley for Wolves in 2007.
Meanwhile, Ipswich have terminated the contract of winger Tommy Oar after the 24-year-old Australian found it "difficult to settle into life in England".
Oar made nine appearances for Town and scored one goal.
Find all the latest football transfers on our dedicated page.
Ipswich Town have signed former Wolves defender Kevin Foley on a contract until the end of the season, subject to international clearance.