Vaughan said he was keen to play alongside Dutch legend Davids, who has come out of retirement to join George Burley's side.
He told evertonfc.com: "Edgar Davids is a massive name and it will be great to play alongside him. It will be good to see how he works but there are plenty of good players around the squad.
"I played against Palace last year so I know there is a good team here and I can't wait to get started.
"It is a good opportunity for me to test myself at a good level of football.
"I heard that Palace were interested a few days ago and I was desperate to get out and play some games. It was a no-brainer for me.
"Straight away I can see the quality all around the dressing room and I am pleased to be here. I am available to face Reading on Saturday so I am going to train the next two days and hopefully play some part."