Alvarez, the 2008 No. 2 overall draft pick who was in his first full major league season, had been on the disabled list since May 20 with a right quadriceps strain.
"Pedro remains a big part of our future," general manager Neal Huntington said, "but we believe making this move is the best way to get him back on track offensively and defensively so that he can help us win games at the major league level."
Alvarez was hitting .208 with two home runs and 10 RBIs in 36 games this season after hitting 16 home runs in 347 at-bats as a rookie last season.
The 24-year-old Alvarez had 11 strikeouts and two extra-base hits (both doubles) in 33 at-bats over 11 games with Class A Bradenton and Indianapolis as part of his rehabilitation assignment.
Pittsburgh manager Clint Hurdle said the organization wanted to take the pressure of returning to the majors off of Alvarez and have him focus solely on improving.
"We needed a volume of at-bats strung together that has nothing to do with home runs, OPS, slugging percentage," Hurdle said. "Where (Alvarez is) squaring the ball up hard and hitting it where it's pitched. That's what we want (him) to focus on."
Alvarez has been one of the centerpieces of the Pirates' latest rebuilding effort. Mired in a string of 18 consecutive losing seasons and coming off 105 losses last season, Pittsburgh (46-42) has had its best pre-All-Star break record since 1992.
But it's been mostly pitching that has the Pirates within a game of first place as play began Saturday. The team ranks 12th in the National League in runs, 13th in home runs and 15th in slugging percentage. Alvarez is one of the few pure power hitters in the organization.