The midfielder will make the switch to the Rosanero until the end of the season with the club having the option to sign him permanently after the loan ends.
“The transfer is that of a six-month loan with the right to sign the player at the end of the season,” said an official statement from Palermo.
The Sicily club made the announcement on Thursday that the former Liverpool player will be making the move to the Stadio Renza Barbera after speculation had linked him with several Italian clubs.
Having only made seven league appearances so far this season for his current club Napoli, the 31-year-old will be hoping the move will bring regular football.
The club have announced that: “Dossena is currently training with coach [Gian Piero] Gasperini and his team-mates and will be presented tomorrow at 14.00 [CET].”