The Argentinian makes the move to Italy on a deal which will keep him at the Stadio Renzo Barbera until June 30th.
Formica, who has 18 months remaining on his contract at Ewood Park, joined Blackburn from native side Newell's Old Boys for an undisclosed fee in January 2011.
The 24-year-old, who suffered relegation from the Premier League with Rovers last season, has made 54 appearances for the Lancashire club, scoring five goals.
However, he has not featured since their 4-1 Championship defeat at home to Cardiff on December 7th.
Formica joins a Palermo side currently second-bottom of Serie A and without a win in eight games.