The centre-back, 27, emerged as a late deadline day target for the Eagles, with Arsenal giving the green light to permit talks with Roy Hodgson’s men.
The £4million move brings to an end Holding’s eight-year stint with the Gunners, having joined from Bolton Wanderers in 2016. In that time, he was often a fringe figure but earned two FA Cup and three Community Shield winners’ medals.
“I’m excited to get started and get involved,” Holding told Palace’s official website.
“Playing against Crystal Palace the number of years I have, seeing the fans and how intimidating Selhurst Park can be, and how loud it can get, I’m looking forward to being on the right side of that this time!”
Hodgson had all-but confirmed the move earlier in the day when asked about links with Holding.
He said: “Rob Holding is player who has interested us for a while and [sporting director] Doug Freedman knows this very well. We are working on the basis perhaps that you can’t have too many good-quality players in your squad.
“So if he was available, and it was a deal which was do-able for the club, then I can only say I would be very happy to work with him here.”