Phillips, who scored 19 goals in 64 appearances for the Tangerines will reunite with former manager Ian Holloway at Selhurst Park.
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He told the club's official website: "Blackpool were approached three or four weeks ago about a club taking me on loan and the club let me know I was available to go.
"I spoke to my agent and then I had a conversation with Ian Holloway and then in the last 24 hours it’s picked up again and he’s someone I know well.
"We obviously got on really well at Blackpool. He brought me in at a time when not too many people were looking for someone for my age.
"I repaid him with 17 goals and helping them to the play-offs so it was a gamble that paid off. I think I can still do a job, he knows that and that’s one of the reasons he’s brought me to the football club."