The Frenchman has been at Chelsea for the past two seasons but has spent most of that time as understudy to Diego Costa.
He has now fallen even further down the pecking order with the arrival of Michy Batshuayi and has therefore had to move to gain first-team football.
Remy worked under Crystal Palace manager Alan Pardew previously at Newcastle, where he scored 14 goals in 27 games.
The 29-year-old revealed his happiness to be teaming up with his former boss again when speaking of the Eagles' club website.
"This is a very good chance for me and a big opportunity. It was very important to know Alan Pardew as he is a very good manager and I am happy to be here," Remy said.
Pardew added: "I brought him to Newcastle so I know what he is capable of and I am convinced he will be a quality addition to our squad as we evolve".