The 62-year-old - who was in charge at St. James’ Park between 2007 and 2008 - replaces another ex-Newcastle boss, Alan Pardew, in the Selhurst Park hotseat.
Allardyce has signed a two-and-a-half year contract and will take charge of the team for the first time against Watford on Boxing Day.
Speaking to Palace Player HD, Allardyce said: "The club seems to be very ambitious, certainly the chairman and the owners, they want to take the club in the right direction.
"I like the look of the squad and that's probably the reason that I'm here; I feel the club can go forward from here and I hope I can help it go forward. It seems to be very ambitious."