The 35-year-old had been available on a free transfer following his release from Brazilian side Fluminense at the end of 2017.
Diego Cavalieri underwent a trial before officially penning a contract with Palace, where he will once again link-up with Eagles boss Roy Hodgson, who worked with the stopper at Liverpool.
“I am very happy to be here and have been training with the guys for some time now,” Cavalieri told Palace’s official website.
“The atmosphere in the dressing room has been really good and they have received me very well so we can talk a lot and get to know everyone. I am very happy with this opportunity.”
He will provide back-up for Wayne Hennessey while Julian Speroni is out with a knee injury. He has three caps for Brazil.
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