Palace confirmed on their website that the 37-year-old former Netherlands international had trained on Friday and would be with them for their match against Ipswich on Saturday.
"It is an exciting time for the football club and it's an exciting time for me," Davids said on the club's website. "I just want to enjoy football and show what I can do."
Davids made his name at Ajax where he won the Champions League and then continued his career in Serie A, first with AC Milan and more successfully with Juventus who he helped reach two Champions League finals.
After spells with Inter Milan and Barcelona Davids joined Tottenham Hotspur in 2005 before returning to his boyhood club Ajax.
Though clearly not the pugnacious midfield force he once was, Davids is a coup for Palace manager George Burley as he tries to steer the London club back into the top flight.
"We spoke to Edgar and had a meeting with him earlier in the week," Burley said on the Palace website.
"The boy felt enthusiasm and has been training with Ajax but now it's good to see us agree terms with him."
