The 28-year-old, who won the last of his five Wales caps in 2013, started his career at Scarlets and had been with the Blues for four years.
Reed will help cover the loss of Juandre Kruger, who pulled out of a move to the Sharks for family reasons.
"Lou came highly recommended by [former Sale scrum-half] Dwayne Peel," said director of rugby Steve Diamond.
"He is a big physical guy who will be a very abrasive addition to the squad."
Reed added: "After playing for Cardiff and Scarlets I am really looking forward to playing for Sale in the Premiership. I have been training all week and have been welcomed by everyone at the club."
Sale Sharks have signed Wales and former Cardiff Blues second row Lou Reed on a two-year deal.