Loftus-Cheek has become the first signing of the transfer window for new Palace boss Frank de Boer.
Palace confirmed the move on Wednesday, with the 21-year-old leaving Stamford Bridge for the first time in his career.
“I had the option of coming to Palace and I thought that it would be great for me,” Loftus-Cheek told his new club’s website.
“I live not too far away, I was born in Lewisham and Palace is good club so I thought it is 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, an England Under-21 international, has made 22 Premier League appearances for Chelsea over the last three seasons, just six of which were starts.
He will hope to gain more regular first-team football at Palace, as they look to improve on last season’s 14th-place finish, with former Ajax and Inter boss De Boer having taken charge following Sam Allardyce’s departure.
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