Holloway, who has been in charge of the Tangerines since 2009 and took them to promotion in 2010, would fill the vacancy left when Dougie Freedman was recruited by Bolton just over a week ago.
Media reports claim that Holloway is keen for the move to go ahead after receiving assurances that star winger Wilfried Zaha will not be sold in January.
Blackpool will receive a reported £400,000 compensation for Holloway and his support staff, with the move apparently likely to be confirmed on Friday.
Freedman left despite Palace sitting in the play-off spots near the top of the table while Bolton were in the bottom reaches of the division.
Holloway's Blackpool are currently 12th, while Palace are fourth.