The 75-year-old Croydon-born coach will remain at Selhurst Park, after signing a one-year contract extension.
Hodgson guided the Eagles to an 11th-place Premier League finish last season after taking over a team nose-diving into a relegation battle.
He previously managed the team from 2017 to 2021, and after a poor stint at Watford, returned to winning ways with Palace when he came out of retirement to rejoin the team in March.
Speaking to the club website, he set the lofty ambition of a top half finish this coming season.
"I am immensely pleased and proud to be extending my time at Crystal Palace," he said. "I would like to thank the chairman and sporting director for their continued faith in me.
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"I know what a fantastic squad we have here. It's a great blend of youth and potential, alongside experienced players with Premier League and international pedigree.
"I have spoken with the chairman at length and we agreed that we must be ambitious in getting the most out of such talent. As such, we have set ourselves the target of a top-half finish, which we believe is eminently achievable with such a fabulous group of players and the most magnificent supporters who get behind the team, week in, week out."
Club chairman Steve Parish added: "Roy's record as manager speaks for itself. His return earlier this year along with Ray Lewington and assisted ably by Paddy McCarthy produced a fantastic return both in results and producing some stylish performances, helping us climb the table and get international recognition for our players.
"Appointing Roy for another season will enable him and the squad to hit the ground running for a full pre-season and continue the magnificent momentum that has built up since his return."