The 26-year-old has been judged surplus to requirements by Frank Lampard since the middle of last season having failed to impress in brief cameos.
His deal runs out in June 2021 but Chelsea will extend his contract by 12 months, like they have with other loanees such as Davide Zappacosta and Lucas Piazon in the past year.
Batshuayi earns more than £100,000 a week and Palace will pay a portion of his wages during the loan. Confirmation of the agreement is expected in the next 24 hours.
He spent the second half of the 2018-19 campaign on loan at Selhurst Park, scoring seven times following a failed spell at Valencia.
Roy Hodgson had been keen on strengthening his frontline ahead of the new season and Batshuayi’s brief success in South London and Chelsea’s desire to send him back out on loan made the move possible.
The deal also has implications for Conor Gallagher, the young midfielder who was about to join Palace on loan.
Premier League rules state you cannot loan more than one player from another club.
Gallagher has plenty of interest from elsewhere with West Bromwich Albion and Aston Villa at the front of the queue. Slaven Bilic’s newly-promoted team are especially keen.
Having done well at Charlton Athletic and Swansea City in the Championship last season, Gallagher has been earmarked for a Premier League loan for several weeks.
He has trained with Lampard’s first-team squad in pre-season and is currently with England Under-21.