Derry, who left Palace for Leeds in 2005, has not made a first team appearance for the Elland Road club this season due to injury. However, he has recently made two reserve team outings as his fitness returns.
The 29-year-old will stay at Selhurst Park until mid-January, and the deal may become permanent once the transfer window reopens.
Neil Warnock told the official site: "At the moment we are short of bodies around the place so I have moved to get him in this week.
"I was impressed with Shaun's appetite to come down and play for us and he will be vital over the next few weeks as we all work together to move in the right direction".