The defender has not made a senior appearance since April 20 last year after first fighting a UEFA doping charge before Jurgen Klopp grew tired of his transgressions.
He can now attempt to resuscitate his career at Selhurst Park, while helping Sam Allardyce’s side avoid relegation.
The Eagles will assume full payment responsibility for Sakho’s wages and will hope the process of getting him fully match sharp will be speedy, considering the centre-back’s only outings were for Liverpool’s Under-23s this season.
"It was really, really long for me and all my family [to wait for the deal to happen], but now I’m really happy to sign here because the project is really interesting," the Frenchman told Palace TV.
"It’s a big challenge and I’ve come for that.
"The most important thing is we need to win a lot of games. I know this is a good squad and I have a few friends that play here and they called me tonight, like [Christian] Benteke.
"For me the objective will be to win."
Liverpool would’ve preferred to get Sakho off the books permanently, but no suitors were willing to match their £20m valuation.