The 27-year-old becomes the south London side's 15th addition of the transfer window with Cameron Jerome, Barry Bannan and Adrian Mariappa all joining the ranks on deadline day.
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He now has another opportunity to prove himself after impressing for Forest last season, netting three goals in 35 league appearances.
His addition marks the latest signing in a busy window for manager Ian Holloway, with the 50-year-old admitting prior to the deadline that he needed fresh faces in his squad as he attempts to keep Palace in the top flight following their return after an eight-year absence.
Also among the new signings are 22-year-old Dwight Gayle and former Arsenal striker Marouane Chamakh, with both having already found the back of the net in the new campaign.