The former Hull City winger joined Leeds on an emergency loan in January under former boss Brian McDermott.
United also agreed to sign the 23-year-old on a permanent basis this summer, and Stewart signed a three-year-deal at Elland Road.
Stewart was expected to become an official Leeds player on Tuesday July 1, but owner Massimo Cellino made his intentions clear this summer.
Leeds have now managed to pull out of the deal and Stewart joined Mick McCarthy's men as a free agent. Stewart has joined the Tractor Boys on a three-year-deal and many fans will be pleased to see him depart.
Stewart started nine games for the Whites last season but failed to show any potential during his spell.
His exit could the first in a long line at Elland Road. Former striker Luke Varney has joined Blackburn on a free contract, while Paddy Kenny, Stephen Warnock, and Marius Zaliukas could all be on their way out.