The 27-year-old winger played under Ian Holloway during a loan spell at Blackpool and has moved to Selhurst Park until the end of the current campaign.
Holloway stressed last week that he was looking to add attacking flair and a further goalscoring threat to his squad having lost Wilfried Zaha to Manchester United and Puncheon appears to tick those boxes, having scored six times for Saints in the Premier League last season.
During a nomadic career Puncheon has represented no less than 11 clubs, the majority of which were on loan deals similar to that which has now seen him become Palace's 10th summer signing since winning the Championship play-off final in May.
He joins Stephen Dobbie, Dwight Gayle, Jerome Thomas, Jose Campana, Kevin Phillips, Elliot Grandin, Marouane Chamakh, Neil Alexander and Florian Marange in joining the Eagles' fight to avoid an immediate return to the second tier and admits he is looking forward to fulfilling a lifelong dream.
"I actually played for Crystal Palace as a kid when I was eight," he told Palace Player.
"I left and there were a few times in my career that I was due to come back but didn't. Now I'm here that's the main thing. I've always as a young kid dreamed of playing at Selhurst Park, so it's a young boy's dream coming true.
"I know Ollie [Holloway] really well. He was a massive factor in this move. He knows the league. He's done it before and I think he will learn from his time at Blackpool and bring it into the team here."
Following a 1-0 home defeat to Tottenham on Sunday, Palace travel to face Stoke on Saturday looking to pick up their first points of the new campaign.