The Israel international has signed a contract running until 2031, arriving from Royale Union Saint-Gilloise, where he helped the Belgian club win their first league title in 90 years alongside the Belgian Cup since joining in 2024.
He scored six goals last season, three of them in the Champions League, adding a layer of continental experience that Palace hope will benefit their own Europa League campaign this term.
Speaking to Palace TV, Khalaili explained his decision to move to south London.
"I have followed the Premier League for a long time," he said. "It's a new challenge for me. And Crystal Palace I like, because I have followed them for a long time.
"They have deserved to win three trophies and I want to do more. It's not enough to win three trophies. We want to do more as we can and I'm here to help the team."
Regarded as one of the most exciting young prospects to emerge from Belgium's top flight last season, the 21-year-old, who can play at full-back or on the wing, said he was ready for the step up.
"Of course, it is the best league in the world," he added. "It's a new challenge. I love these new challenges — and I'm ready. I'm strong, I'm fast. I like to dribble. But I also like to defend. I like to help the team and to show the fans my quality."
Khalaili's move follows a two-year rise at Union Saint-Gilloise that established him as one of European football's more sought-after young defenders, with Nottingham Forest also credited with interest earlier in the window and a move to Inter Milan having collapsed after he failed a medical.
Crystal Palace's own recent success — an FA Cup, Community Shield and Conference League across the past two seasons — gives the club a genuine platform to attract talent of Khalaili's calibre, with head coach Pierre Sage keen to add competition in wide areas as Palace balance Premier League and European commitments this season.