A statement from the Blues on Friday said the 27-year-old will spend the 2021/22 campaign with the Royals.
Chelsea, however, added that Rahman extended his contract with the club before sealing his loan move.
“Baba Rahman has extended his contract with Chelsea and moved on loan to Championship side Reading for the remainder of the 2021/22 campaign,” a section of the statement said.
“It will be the Ghanaian’s first taste of English football away from the Blues following his transfer from German side Augsburg in the summer of 2015.
“He made 23 appearances during his debut season at Stamford Bridge, impressing in the Champions League knockout round against Paris Saint-Germain.”
Rahman featured prominently during Chelsea’s pre-season matches and even recorded an assist in their 2-1 win against Bournemouth.
However, manager Thomas Tuchel has decided to stick with left-backs Ben Chilwell and Marcos Alonso ahead of the Ghanaian in his squad for the season.
The move to Reading is Rahman’s successive loan move away from Chelsea, having spent the last season on loan at Greek club PAOK Thessaloniki.