Moody has been working with Mackay since their Watford days, joining the Scot when he left Vicarage Road for South Wales in the summer of 2011.
Mackay was furious when his head of recruitment was sacked, claiming he had been undermined by owner Vincent Tan, who recruited 23-year-old Alisher Apsalyamov to replace him - Apsalyamov has since stepped down over a visa query.
Palace's next appointment could be a new manager, with Keith Millen still in charge while they seek a replacement for Ian Holloway - Spaniard Aitor Karanka is the new favourite with the bookmakers at the time of writing.
But Moody now has a new role to look forward to, and he said: "'I am very excited by the opportunity I have been offered and would like to thank the club for their faith in me.
"The club has made impressive progress since 2010 and I look forward to playing my part in helping ensure their continued success. I can't wait to get started."
Palace chairman Steve Parish added: "I have great pleasure in welcoming Iain to the club. The role of sporting director will cover all areas of player recruitment and contract management and is an important building block as we move the club forward.
"The chief scout will report into him. He's work directly with me and with the new manager when he's appointed."