"It is sad to leave Blackpool as my time there was the best trip I have been on and leave very proud of what was achieved and I would like to wish them all the best. I just see this as too good an opportunity to turn down," Holloway told Palace's website.
"I got great energy when I met the club's owners and just can't wait to get going.
"I am bringing in Keith Millen as my assistant who is a Croydon boy and he is as excited as I am about the opportunity."
The departure of Holloway and Millen leaves Steve Thompson to take charge of today's trip to Derby County.
Holloway's switch to South London means that six managerial changes have been made in the Championship this season.
After a lightning start to the season, Blackpool have plummeted out of the playoff places while Palace are on form and sit fourth.