The 25-year-old will spend the season at Selhurst Park, with the Eagles then having the option to buy him next summer.
“I’m delighted that we’ve signed Victor, and we think he will further improve the quality of our squad,” Palace chairman Steve Parish told the club website.
“He is a talented, exciting player who will offer us creativity in the midfield.”
Camarasa has Premier League experience having spent last season on loan at Cardiff where he scored five goals and provided four assists in 33 matches.
After returning to the English top flight, he said: “I am very happy to be here and I’m so excited to start with the group. I think Palace has great players and it is a great club.
“I’m going to work hard to play football and I hope that the fans are excited with my football.”