The former Sunderland striker might be in the twilight of his career but he will spend at least one more season at the top after joining the Eagles.
Phillips spent a successful loan period from Blackpool last term, netting the winner in the Championship play-off final to end Palace's eight-year top-flight absence.
Now that move has been made permanent, with the veteran free agent moving to Selhurst Park on a year-long deal.
Kevin Phillips: "I am absolutely delighted, I loved my time here at the end of last season and was always hoping to have another chance to play in the top flight.
"It's unbelievable for me but I am really looking forward to it and hoping I can play a great part in the season ahead.
"Everyone I spoke to said to keep going as long as the fitness and hunger is there and that is certainly the case with me."
Phillips last played in the top tier with Birmingham in the 2010/11 season.
He will become just the third outfield player to have played in the Premier League at 40, following Teddy Sheringham and Gordon Strachan.
The club are awaiting final written confirmation of the paperwork from the Football Association and Premier League.