Allardyce, the former England manager who joined Palace in December, sees Schlupp, who made 24 Premier League appearances in Leicester's title-winning run last season, as an important purchase in the club's fight to avoid relegation.
Schlupp, who made just one start in four League appearances for the Foxes this season, missed out on Ghana's African Nations Cup squad so is free to play for 17th-placed Palace at West Ham United on Saturday.
"I am delighted we have been able to secure Jeffrey's services, he is a player I have admired for some time and is a talented and athletic player," Allardyce told Palace's official website.
"He will bring strength and experience to the defence and will be a major asset for the club."
(Reporting by Ian Chadband, editing by Pritha Sarkar)
