The 21-year-old midfielder has made 32 appearances for Chelsea but struggled for extended first-team exposure last season.
“Palace have a very strong team and I’d like to be a part of that this season,” said Loftus-Cheek.
“I live not too far away, I was born in Lewisham and Palace are a good club.”
Palace play their first game of the new season against Huddersfield Town on Aug. 12.
(Reporting by Neil Robinson; Editing by Christian Radnedge)
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