The England international, who spent five years at Selhurst Park following a move from Newcastle United, is one of a number of high-profile players released by the Eagles following the expiration of his contract.
New boss Patrick Vieira wants to revolutionise the south London outfit in his image after succeeding Roy Hodgson earlier this month.
It means Townsend has been afforded a second chance in the Premier League, with Benitez a huge admirer of the 30-year-old.
talkSPORT understands the England international has completed his medical with Everton and will be unveiled on Tuesday morning with a two-year deal at Goodison Park.
Rafa Benitez may not have been the popular choice amongst Everton fans giving his allegiance to Liverpool, but the Spaniard has started his new role with authority.
As well as Townsend, Benitez reportedly wants to sign Dwight McNeil from Burnley for a reported fee of £25million.
The England Under-21 international has shone at Turf Moor since bursting onto the scene 18 months ago, with the Liverpool Echo claiming Benitez wants more wide men to supplement Dominic Calvert-Lewin.
Demarai Gray is also under consideration, with the former Leicester City winger only moving to Bayer Leverkusen in January, but Benitez is keen to inject more pace into his side.