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The 75-year-old succeeds Frenchman Patrick Vieira, who was sacked last week after a poor run of form left the team three points above the relegation zone.
Palace are the only Premier League team without a win in 2023, having drawn five and lost six of their games.
Thomas Partey and substitutes Ben White and Reiss Nelson -- Nelson's arriving in the seventh minute of stoppage time -- sparked wild scenes of celebration.
Manchester City defeated Bournemouth 4-1 and trail Arsenal by 2 points but having played a game more.
The 31-year-old had been missing since the February 6 earthquake.
Manchester United cemented their top-four place, moving level on points with Newcastle as goals by Casemiro, Luke Shaw and Marcus Rashford sealed a 3-0 victory at Old Trafford.
The England right-back lasted only 53 minutes on his return from the knee injury that ruled him out of the World Cup in Qatar.
City drubbed Southampton 4-0 with Erling Haaland scoring again.
Nottingham Forest squandered a lead for the second successive Premier League game as they slipped to a 3-2 home defeat by Fulham.
Newcastle United's record signing Alexander Isak scored on his debut to put his side ahead at Anfield but Liverpool snatched a 2-1 victory deep in stoppage time through Fabio Carvalho.