James, 20 in November, joined the Reds as an 18-year old in July 2012 having previously been on the books with Preston North End, Rossendale United and Blackburn Rovers.
His form under the guidance of Warren Joyce earned him a full-time contract and he has since become a regular and very steady performer in the U21 squad at Old Trafford.
“We've watched Reece a number of times and he's one we think will add to the squad in a very positive way,” said Greg Abbott, Carlisle manager.
"He's keen and hungry to be involved and he's one we're really looking forward to working with. He's a good footballer and a hard worker and he really wants to be here.
"Hopefully this type of move will give him time to settle and make the type of impact we think he's capable of making."
Reece's older brother Matty James, a midfielder, left the Reds in May 2012 when he signed for Leicester City on a three-year contract.