Palace has not won in its last 12 league games and have turned to 75-year-old former England boss Hodgson to lead them away from danger.
Hodgson ended a four-year stint at Selhurst Park in May 2021 before making a surprise return to football with Watford last season, which ended in relegation from the English top flight.
He left the Hornets and said he would not be seeking another Premier League job, but he has been tempted back by Palace, who sacked Patrick Vieira last week.
Hodgson joins until the end of the season and said: "It is a privilege to be asked to return to the club, which has always meant so much to me, and to be given the important task of turning the team's fortunes around. Our sole objective now is to start winning matches, and to get the points necessary to ensure our Premier League status.
"Crystal Palace is known for its fighting spirit, and I have no doubt that all our supporters will fight with us, beginning with the visit of Leicester City a week Saturday."
Hodgson began his football career as a Palace youth player before drifting into non-league football; however, as a coach he has touched greater heights, having worked for Switzerland, Inter, Blackburn Rovers, Liverpool and West Brom, among many others.
Ray Lewington also returns to the club as first-team coach, and Paddy McCarthy is made assistant manager, with Palace sitting 12th in the 20-team league – just four points off the foot of the table.
Palace chairman Steve Parish said: "I would like to welcome Roy and Ray back to the club. We are obviously in a very challenging period, but we believe that Roy's and Ray's experience, knowledge of the club and players, alongside Paddy can help fulfil the immediate requirement of keeping us in the league."