The England u-21 international came through the youth ranks at Stamford Bridge and made two senior appearances for Chelsea.
Guehi spent last season on loan in the Championship with Swansea City, where he made 43 appearances to help the Welsh club reach the play-off final, losing to Brentford.
Guehi becomes new Palace manager Patrick Vieira’s third summer signing after Michael Olise and Remi Matthews.
"I’m very excited. It’s a great opportunity for me to come to such a big club in the Premier League. I’m really excited to get going," Guehi told Palace's website.
"[The club is taking] a really exciting direction with the new gaffer that’s come in. A lot of good young players are here and obviously such a stable club with top players really enticed me and made me want to come."
Chairman Steve Parish added: "We are delighted to have signed Marc for Crystal Palace. He's an exciting talent and one we believe will be a valuable addition to the squad as we build towards the coming season."
Guehi could be set for a swift return to Stamford Bridge as Crystal Palace visit Chelsea in their first Premier League game of the 2021/2022 season on August 14.
