The 29-year-old hitman joined on a one-year deal from Arsenal last summer, and will be extending his stay after impressing boss Tony Pulis.
The Moroccan's five Premier League goals helped steer Palace clear of the relegation zone and into a second consecutive season in the top flight for the first time in the club's history.
A new deal had seemed on the cards after Chamakh said in May's Palace match programme: "My first choice would be to continue my adventure with Crystal Palace.
"My priority is to stay here. The adventure here is not over. We've had a good season and built something really, really strong. I hope that will continue."
Chamakh will now fly out to Austria to join up with the rest of the Palace squad on their pre-season training camp, and could play a part in the friendly against GAK Graz on Wednesday.