The Pirates have paid an undisclosed fee in excess of £100,000 for the 23-year-old former Lincoln City midfielder, who spent a brief spell on loan at the Memorial Stadium in March.
However, he sustained an ankle ligament injury in the opening 30 minutes of a reserve team game and returned to Palace without making a first-team appearance for the club.
Director of football, Lennie Lawrence, told the club's official website: "We're delighted to bring to an end the pursuit of Jeff Hughes. We've been after him for six months, and he's now signed a deal with us.
"He's a quality addition to our squad, who can play at left midfield or left-back. We think we've secured a player with Championship potential and Palace must agree as they paid double what we have for him just a year ago.
"Negotiations are ongoing to bring in a striker and we're hopeful that we'll have another quality signing in place when we report back for pre-season training."