The London side have turned to Warnock to replace Tony Pulis, who left on the eve of the Premier League season, and the 65-year-old has signed a two-year deal.
Warnock first took charge of Palace in 2007 and guided the club to the Championship play-offs in his maiden season, but left for QPR in 2010 as administration gripped Selhurst Park.
He was reported to be competing with former West Brom coach Steve Clarke for the job, and has been given the nod to lead Palace's bid for top-flight survival.
His first task will be to tackle Newcastle United at St James' Park on Saturday.
Palace's search for a new boss has been shrouded in controversy. Malky Mackay had looked set to take over before allegations of distasteful text messages exchanged with Iain Moody emerged.
The Scot saw his chances of taking over end, while Moody resigned from his role as sporting director at Selhurst Park.
Tim Sherwood revealed that he pulled out of the running for the job because he was not co-chairman Steve Parish's first choice, then Neil Lennon was also linked with the role.
Palace have eventually opted for the experience of Warnock, who has been out of work since leaving Leeds United in April last year following a disappointing spell in charge of the Championship club.
Warnock takes over a side that have lost both of their Premier League games so far this season, but beat League One side Walsall 3-0 in the second round of the League Cup on Tuesday.
