Loftus-Cheek enjoyed a very fruitful 25-game loan spell at Selhurst Park last season and played a big part in guiding them away from relegation trouble.
As Palace travel to Stamford Bridge today the pair will be reunited and Hodgson, 71, said: “He was a star for us and will be a star of the future.
“He spent almost a season with us, although he was injured for part of it.
“We were really pleased at having him. He made an enormous impression, played extremely well and was a decisive figure towards the end of the season when we started to really climb up the league.
“I'm pleased now, after a period when he didn't seem to be getting many chances, that he's gone into the team and shown what we saw in him – that he's a top-class player.
“I was really pleased when he came in the other week in that Europa League game and scored a hat-trick."
Hodgson was keen to get his hands on Loftus-Cheek for a second time but fully understood why the young Three Lions ace, 22, wanted to stake his claim for a starting spot at Chelsea.
Hodgson said: “It was no secret we wanted him back because he'd done so well.
“We didn't want to lose any of that team. We weren't anxious to lose Yohan Cabaye when he chose to go to Dubai – we weren't looking to get rid of that team which had done so well.
“Ruben came back from the World Cup and it was clear that the new manager, who hadn't even been appointed at that time, would probably want some time to assess him before he made a decision.
“So I wasn't at all surprised that he didn't go out on loan anywhere and we were fully aware of the situation. In Maurizio Sarri's and Chelsea's position I'd have done exactly the same. I suppose him being a south-east London-born footballer gave us a little bit of a homegrown element, so there's perhaps more a feeling of, 'What a shame he's not here', than there maybe would be with another player.
“But football is very much a pragmatic business and it's a big mistake to start wishing for things that you're never going to have or regretting things that were never going to be possible.
“When he left I was congratulating him on his season, on being picked for England and said to him, 'Don't forget, there's always a place for you here.
“If you are moving on we'd love to have you back, but I'm now expecting you to go to Russia to do extremely well for England – and I'm fully expecting Chelsea to welcome you back with open arms'."