Schlupp, 24, has joined for an undisclosed fee, reported to be £12m.
The Ghana international made 24 Premier League appearances in 2015-16 as the Foxes won the title for the first time in the club’s history.
But he has started only one league game this season and has not featured at all since the 5-0 Champions League loss at Porto on 7 December.
Schlupp, Sam Allardyce’s first signing as Palace manager, was left out of Ghana’s squad for the Africa Cup of Nations in Gabon.
He began his career at Leicester – making 150 appearances for the club and scoring 15 goals – and had a loan spell at Brentford during 2010-11.
West Brom boss Tony Pulis had been interested in Schlupp, who joins a Palace side 17th in the Premier League.
The Eagles, one point above the relegation zone, visit West Ham on Saturday, then have an FA Cup third-round replay at home to League One Bolton on 17 January.
Schlupp will be available for the game at London Stadium.
Allardyce praised the versatile winger, adding: “He will bring strength and experience to the defence and will be a major asset for the club having just turned 24-years- old”.
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