Ferguson, 19, joins as a free agent following his recent contract expiration at West Bromwich Albion, where he has developed since the age of eight, rising through the Academy ranks.
Ferguson made his senior debut for the Baggies in their first match of the 2019/20 season, making 21 appearances during the campaign before a knee injury curtailed his progress.
Palace’s latest signing has represented England at Under-18, U19 and U20 level – collecting one, three and four caps at the respective age groups.
Having put pen to paper for the Eagles, Ferguson said: "It’s great to be here. Crystal Palace is a great club in my opinion, and I feel like there’s a lot that I can bring to the team. I’m so happy to be here and I can’t wait to get started."
Chairman Steve Parish said: "Nathan is a fantastic signing for us, a player we’ve been committed to for a long time. He is hungry, focused, has a great attitude and he’s got an abundance of talent. It’s been a challenging six months for Nathan, and I’m genuinely so pleased for him that we have finally secured his services."
Watch Nathan's first interview as an Eagle below!