Marrow, 23, started his career as a trainee at Ewood Park but failed to make a first-team appearance for Rovers before his switch to Palace in January 2011.
But Blackburn boss Gary Bowyer, who worked with Marrow at youth level, has now brought him back to the Lancashire club on a three-year deal.
"Alex is someone I know well from back in the youth and reserve-team days here," said Bowyer, who also made a similar swoop for former Academy graduate Alan Judge earlier this summer.
"He's another player who I feel didn't fulfil his potential here. He went away to Crystal Palace and played towards the back end of the season and just missed out on the play-off final.
"He was hungry to come back here and make his mark, which he was unable to do the first time around. That hunger and desire is what we need."
Marrow spent the first half of last season on loan at League Two side Fleetwood before returning to Selhurst Park, where he made four Championship appearances but did not feature in the club's successful play-off bid.