The 39-year-old is hoping to earn promotion for the fourth time in his career, having previously gone up with West Bromwich Albion, Birmingham City and Blackpool.
He said: "Blackpool were approached three or four weeks ago about a club taking me on loan and the club let me know I was available to go.
"I spoke to my agent and then I had a conversation with [Palace manager] Ian Holloway and then in the last 24 hours it's picked up again.
"He's someone I know well. We obviously got on really well at Blackpool."
Phillips has scored 19 goals in 64 appearances for the Tangerines.