Bailey was a key player for the npower League One club during his initial 93-day emergency deal, which ended following the Sky Blues' 3-1 victory at Stevenage on Boxing Day.
The 24-year-old has made 18 appearances and scored one goal since joining Mark Robins' side at the end of September.
Robins said: "I'm absolutely delighted. He's shown in his time with us the contribution he can make and I just want to thank Derby for letting us have him for the rest of the season.
"I hope now James can continue to have the kind of impact he's already shown he can have for us."
Coventry are hoping to have Bailey available for their home game against Shrewsbury on New Year's Day and are awaiting approval from the Football League.
- Sports & Recreation
- Mark Robins