The 19-year-old, who can play anywhere across the back four, has joined for an undisclosed fee but will be loaned back to the Bairns for the rest of the season.
Wallace appeared to be heading for Ipswich after manager Paul Jewell revealed Falkirk had accepted their bid on Friday.
But the defender opted to join the Terriers instead, with manager Lee Clark telling the club's website: "We've done extensive homework on Murray as a coaching team and we all feel that he has a massive future, both at Huddersfield Town and internationally with Scotland.
"Murray had quite a few options available, including several Championship clubs, and it's a superb sign and compliment that he has chosen to come here."
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