The 18-year-old has come through Chelsea’s academy and was the club’s top scorer in the development squad last season.
Ugbo’s 10 goals in the FA Youth Cup helped the Blues to lift the trophy for a fourth consecutive time and Chelsea are now keen to see him get some senior experience.
The forward scored a total of 23 goals in 35 outings for Chelsea’s Under-18 and Under-23 sides and boasts a total of 60 goals in the last three seasons.
Barnsley have now decided to take a punt on Ugbo and boss Paul Heckingbottom says he is excited to see how he fits in.
Heckingbottom told Barnsley’s official website: "We're really pleased at being able to bring one of the brightest young strikers out there to Oakwell and of course we must thank Chelsea for allowing us to do so.
"I am really excited about what Ike can bring to the team. He is a forward who has pace, height, strength and power as well as a keen eye for goal, as is shown by his record.
"He fits into the mould of players that we're looking for - someone who wants to better themselves and further their career so we are more than happy that he has chosen to continue that development with us."