The England international has agreed a five-year contract at the club, and his transfer comes on the same day Dwight Gayle has moved in the opposite direction.
"I'm extremely delighted," the 24-year-old winger told Palace's official club website.
"I had chats with the manager (Alan Pardew) and chairman (Steve Parish) before I signed and I'm pleased to be part of Crystal Palace's future.
"By the sounds of things it's going to be a bright one and I can't wait to get started."
In becoming Palace's club-record signing - surpassing the £10million spent on Yohan Cabaye last summer - Townsend has moved clubs for the second time in little over six months.
He joined recently-relegated Newcastle for the same fee from Tottenham in January, and his fine form there - he scored four goals in 13 appearances as one of the few players to impress despite their poor season - earned him a call-up to England's initial squad for Euro 2016.
"It's fantastic that we've managed to get a player of Andros' quality into the club," Parish said.
"He has played in the Premier League for a number of years and represented England on many (11) occasions and yet he's still only 24 years old.
"Andros is another exciting attacking talent that we have added to our ranks and I can't wait to see him in a red and blue shirt in the very near future."
Townsend's arrival further strengthens Palace's already strong options in the final third
He is expected to play on either wing, where the talented Wilfried Zaha and Yannick Bolasie are regulars, and where Jason Puncheon also vies for selection.
Source : PA
Source: PA