The midfielder was released by the Premier League outfit in January and has opted to return to the club he left last summer and could face Nottingham Forest on Saturday
The 26-year-old spent three years at Bloomfield Road but was released by former manager Paul Ince at the end of the 2012-13 season.
He completed a free transfer to Palace in August but found opportunities limited, and the departure of Ian Holloway resulted in him being left out of the first team.
At the end of the January transfer window Grandin and Palace agreed to cancel his contract, allowing him to find a new deal and he has returned to Blackpool.
Blackpool confirmed the deal on their official website, and confirmed he would be immediately available for selection for caretaker manager Barry Ferguson.
"Elliot Grandin has returned to Blackpool, signing a deal until the end of the season," a statement read.
"Having played in a practice match on Tuesday, Grandin is fit and available for selection for the game against Nottingham Forest this weekend."
Grandin made 44 appearances during his first spell at Bloomfield Road, scoring six goals for the club.