The 25-year-old was given permission to leave the club after being left out of the club’s pre-season tour of the United States.
Chalobah was also not selected in any of Enzo Maresca’s squads for Chelsea’s first four matches this season.
The defender’s move was announced on Saturday morning but was completed before the transfer window closed on Friday night.
“I’m delighted to join an ambitious club like Crystal Palace,” said Chalobah.
“I know some of the boys in the squad well and I’m looking forward to playing alongside them in front of the amazing support at Selhurst Park.”
The defender made 17 appearances for the club last season under Mauricio Pochettino, having been handed his debut by Thomas Tuchel in 2021.
Chalobah could form a centre-back partnership with Marc Guehi, who remained at Selhurst Park this summer despite interest from Newcastle United.
The Eagles also signed Eddie Nketiah from Arsenal and Maxence Lacroix from Wolfsburg on deadline day, following the departures of Michael Olise to Bayern Munich and Joachim Andersen to Fulham earlier in the window. Striker Odsonne Edouard also left Palace to join Leicester City on loan for the season.
Chalobah was one of four Chelsea players to leave the club on season-long loan deals on deadline day.
Forward Raheem Sterling joined Arsenal, Serbian goalkeeper Djordje Petrovic moved to Strasbourg and Everton signed striker Armando Broja.
Chelsea completed a season-long loan deal for Manchester United winger Jadon Sancho, which includes an obligation to buy in 2025.