Townsend, who only just missed out on inclusion in England's 23-man squad for Euro 2016, has signed a five-year deal at Selhurst Park, the London club confirmed.
The 25-year-old former Tottenham Hospur winger only signed for Newcastle last January in a bid to secure regular first-team football and save the club from relegation from the Premier League.
Townsend scored four goals in his 13 appearances at St James' Park.
"It was a pretty easy decision to choose Crystal Palace because of the direction they’re heading," he told the Crystal Palace website.
"They play a system that suits wingers and you only need to look at Wilfried Zaha, Yannick Bolasie and Jason Puncheon to see how they’ve excelled and how influential they are for Palace. I want to be a part of that and help this club reach its potential."
Gayle, 25, has signed a five-year deal. He has been Palace's top scorer for the past three seasons, netting 25 times despite finding his first-team opportunities restricted at Selhurst Park.
He is Rafa Benitez's second signing this summer, following the arrival of Gent goalkeeper Matz Sels. Veteran manager Barry Fry, who gave Gayle his break at Peterborough United, acclaimed the signing.
"It’s a brilliant buy for Newcastle – honestly, the fans should be made up (very happy)," said Fry, who is Peterborough's director of football. "He's the most natural striker of the ball I've ever seen – right foot, left foot, good in the air, he's got the lot."
(Reporting by Neil Robinson. Editing bY Adrian Warner.)
