Phillips spent a successful loan period from Blackpool last term, netting the winner in the Championship play-off final to end Palace's eight-year top-flight absence.
Now that move has been made permanent, with the veteran free agent moving to Selhurst Park on a year-long deal.
"I am absolutely delighted, I loved my time here at the end of last season and was always hoping to have another chance to play in the top flight," Phillips told the club's official website, cpfc.co.uk.
"It's unbelievable for me but I am really looking forward to it and hoping I can play a great part in the season ahead.
"Everyone I spoke to said to keep going as long as the fitness and hunger is there and that is certainly the case with me."