Press Association had reported earlier on Wednesday that only Warnock and former West Brom boss Steve Clarke were in the frame for the Selhurst Park job.
However, co-owner Steve Parish has decided on a stunning Selhurst Park return for Warnock.
Warnock joined QPR from Palace in 2010 after a two-and-a-half-year spell but the 65-year-old has not managed since leaving Leeds in 2013.
The appointment will pair Warnock with Jason Puncheon once again after the pair had an infamous Twitter spat that led to Puncheon being hit by a £15,000 and warned about his future conduct.
Warnock enjoyed a successful spell as Palace boss from 2007-2010 in which he turned them from relegation contenders in the Championship to promotion pusher, but he saw the side lose to Hull City in the play-off final in 2008.
Eventually, severe financial restrictions contributed to him leaving the club in 2010 when the club was in administration.
The 65-year-old Warnock has not worked for 16 months, although he held talks about becoming manager of Nottingham Forest last March before pulling himself out of the race.
He has managed both Sheffield United and Queens Park Rangers in the Premier League in the past
Palace were forced to turn to Warnock after missing out on their top two targets.
The Eagles were forced to pull the plug on appointing Malky Mackay after the FA launched an investigation into Cardiff's allegations he sent racist, sexist and homophobic text messages, while Tim Sherwood withdrew his interest after initially being deemed second-choice to Mackay.
You can make a case for and against Warnock being a decent appointment for Palace. He has been seen as a man to get you into the Premier League but not so much for keeping you there. Sheffield United went down his sole season with them in the top flight, while he was sacked at QPR midway through their campaign in the top flight after having brought them up.
However, his style of management is not dissimilar to that of Tony Pulis's and he might be a decent fit at this juncture, especially with other candidates dropping out for various reasons. He has enough self-confidence to walk in there and stamp his authority and, hey, if Palace do go down, no better man to get them back up.
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- Jason Puncheon