The move contains an obligation to buy if Saints win promotion from the Championship this season, in a deal which would be worth about £20m.
Meanwhile Saints' Germany international defender Armel Bella-Kotchap has joined PSV on a season-long loan.
The 21-year-old made 26 appearances last season after arriving from Bochum.
He then helped England win the European Under-21 Championship this summer.
"I can't wait to get going," Harwood-Bellis told the club Saints website.
"I want to win, I obviously had a taste of that this summer, but my aspiration is to become a better footballer as well, and I feel like I can do that along the way and learn different styles and different ways to play football and I feel like the manager, the staff and the team here can help me do that."
Harwood-Bellis is Southampton's sixth signing from the Manchester City academy since Sport Republic took over at St Mary's.
Southampton director of football Jason Wilcox said: "Taylor arrives with experience beyond his years, including a vast amount of games at Championship level which includes lifting the title last season.
"He's someone who can help us immediately but also has huge potential to continue developing.
"Taylor's attributes make him a perfect fit for our system and how we want to play, and I have no doubt he'll prove to be a valuable addition."