Loftus-Cheek becomes new manager Frank de Boer's first signing at Palace and returns home to south London, where he was born and raised.
"I had the option of coming to Palace and I thought that it would be great for me," Loftus-Cheek said in a club-issued statement. "I live not too far away, I was born in Lewisham and Palace is good club so I thought it’s a good chance to play here and be a part of the team. They have a very strong team and I’d like to be a part of that this season."
Loftus-Cheek has been a part of Chelsea's youth ranks since he was 8 years old and has featured 32 times for the senior team in the last three seasons, scoring a pair of goals. He is also an England Under-21 international, with 17 caps to his name.
"Wishing you the best of luck at Crystal Palace," Chelsea wrote, on Twitter.