The 29-year-old has signed for a fee that could rise to around 13 million with add-ons, easily surpassing the club's previous transfer record of seven million pounds paid to Wigan Athletic for Scottish midfielder James McArthur.
Palace finished 10th in the Premier League last season and manager Alan Pardew will be reunited with Cabaye after he signed the Frenchman from Lille in 2011 during his time as Newcastle boss.
Cabaye, who has 38 international caps, was an influential figure at St James' Park, scoring 18 goals in 93 outings before joining French champions PSG for 19 million pounds in January 2014.
"I wanted to come and play for Palace because there are some really strong players here. They finished very well last season and I think they can compete to get into the top eight," Cabaye told the club's website (www.cpfc.co.uk).
"I also know the gaffer and have worked with him before and I'm confident with him. I want to do my best for him because he's made a big effort to get me to come here, as well as the chairman, so I have to say a big thank you to both of them."
Cabaye struggled for first team opportunities at the Parc des Princes and started just 13 games last season, falling behind Thiago Motta, Javier Pastore, Marco Verratti and Blaise Matuidi in the pecking order as PSG won a domestic treble.
(Reporting By Michael Hann; Editing by John O'Brien)
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