The 26-year-old Scotland international midfielder completed the formalities of the move after arriving at Palace's training ground on deadline day - just days after a proposed transfer to Leicester fell through.
McArthur, who joined Wigan from Hamilton Academicals for £500,000 in July 2010, has signed a three-year deal at Selhurst Park and is Neil Warnock's third signing since taking over as manager last week.
He has since made 156 appearances for the Latics in all competitions and scored 12 goals, and he now takes over from striker Dwight Gayle as Palace's most-expensive player.
Wigan boss Uwe Rosler said of McArthur: "James is a fantastic professional, we wanted to keep him but the offer was a very good one and we have made a decision which we feel is correct for the long-term benefit of the club. We wish him all the best."
Warnock signed winger Wilfried Zaha from Manchester United on a season-long loan soon after his return to the club and also added left-back Zeki Fryers from Spurs earlier on deadline day.