Moody was ousted from his position at the Cardiff City Stadium last month and replaced by 23-year-old Kazakh Alisher Apsalyamov, in a surprise move by owner Vincent Tan.
Moody has functioned alongside Cardiff manager Malky Mackay at Watford and the Welsh side, and Palace co-chairman Steve Parish believes he has signed up a skilled operator.
Parish said on BBC1: "I think the whole area of our recruitment is essential at a football club.
"Iain's got great experience, working with Malky Mackay at Watford and latterly Cardiff, with great success as well.
"Iain will be responsible for all areas of player recruitment. The chief scout will report into him. He'll work directly with me and with the new manager when he's appointed."