Allardyce's appointment comes just a day after the Eagles parted ways with Alan Pardew after a disappointing 2016. Palace have won just one of their last 11 league matches, culminating in a 1-0 loss to Chelsea on Saturday which sees them sit one point above the relegation zone.
The 62-year-old Allardyce completed talks with chairman Steve Parish on Friday, and will take training on Saturday ahead of Palace's Boxing Day clash with Watford.
The move marks a swift return to management for Allardyce who left his England post just 67 days and one match after taking charge after he was the subject of a newspaper investigation in which he was filmed discussing FA rules on third-party ownership by undercover reporters.
Allardyce, who began his coaching career with Limerick, as a player-manager, has also coached Preston North End, Blackpool, Notts County, Bolton Wanderers, Newcastle United, Blackburn Rovers, West Ham United and Sunderland.
Allardyce is seen as something of a survival specialist, and has never been relegated from the top flight as a manager.