The 19-year-old centre-back joins Palace to continue her development in the Barclays Women's Super League 2.
She already has experience in senior football, having made ten appearances for Blackburn last season and four appearances for Birmingham City in the current campaign.
Born in Shrewsbury, she came through the West Bromwich Albion academy before signing her first professional contract at Manchester United in 2024.
Newell has represented England throughout the various age groups, featuring at the Under-16, Under-17, and Under-19 level so far.
She was part of the Young Lionesses side at the 2025 UEFA Women’s U19 European Championship, who managed to qualify for the FIFA U20 Women’s World Cup.
Newell will wear the number 25 and will be eligible to face Durham on Sunday.
Manager Jo Potter said: "We are delighted to have Lucy join us at Palace.
"She is a promising talent who has already gained some good experience at club and international level."
Speaking on her move to Palace, Newell said: "I'm really excited to be here. Crystal Palace is a massive club with huge ambitions and I'm just excited to be a part of them now."