Reid had been banging in the goals for Newport County this season and had attracted attention from Coventry, Stoke and others.
Stevenage have not disclosed the fee but said it was a club record. Reid is expected to go straight into their squad to face Gillingham tomorrow.
Stevenage's Chairman Phil Wallace told his club's website: "We've agreed not to disclose the fee, but it's a club record by a long way for both Newport and ourselves. Graham, along with many managers, has long been an admirer of Craig Reid but he's been one those 'unavailable' players that you like and know will improve your side, but that you're just unable to sign. We've had several brief conversations with Newport during January, but sometimes on deadline day you can do what you think is the right deal for everyone. It wasn't easy as there was a lot of competition and I've spent nearly the whole day in talks making it happen, but we're delighted to have made this important signing.
"It will no doubt take Craig a while to get used to the Football League, but he's got a great future and has the capability to play at a high level before too long. We're slowly and carefully rebuilding the look of our squad to cope with the requirements of the Football League, going about our business in a focused, structured manner and I've no doubt that a few more will follow on loan during the next few months. Our intention is always to win the next game and be well positioned for the second half of the season."