Holding was one of a number of players Arsenal were looking to offload ahead of Friday’s 11pm summer window cut-off.
The 27-year-old centre-back faced plenty of criticism last season when he replaced the injured William Saliba in Arsenal’s starting XI, as the Gunners’ Premier League title challenge fell apart.
Holding is now set to sign a three-year deal with Palace and the south London club will pay around £4m for his services, according to The Athletic.
Palace boss Roy Hodgson spoke openly about his desire to sign Holding in a press conference on Friday.
‘He is a player who has interested us for a while,’ the former England manager said. ‘Dougie Freedman (Palace sporting director) knows him very well.
‘We’re working on the basis that you can’t have too many quality players in your squad.
‘If he was available and it’s a deal that is doable I’d be very happy to work with him.
‘Our squad is not that massive. There is space in the 25-man squad for another player. If it could be Rob we’d be happy with that.’
Holding, who has not featured so far this season, joined Arsenal from Bolton seven years ago and has made a total of 162 appearances for the Gunners.