Palmer and Houshmandzadeh were teammates in Cincinnati for six seasons and both had their greatest NFL success when they were together.
A source told ESPN.com's John Clayton that Houshmandzadeh accepted a one-year, $910,000 deal after Palmer encouraged the Raiders to look at the veteran wideout.
Houshmandzadeh, 34, had been out of the league since playing with Baltimore last season but had been working out in Southern California with Palmer before the Raiders (4-3) acquired the quarterback last month.
Houshmandzadeh is also very familiar with Raiders coach Hue Jackson, who was the receivers coach in Cincinnati for three years during Houshmandzadeh's tenure there.
Houshmandzadeh averaged 89 catches over a five-year span in Cincinnati. His best season came in 2007, when he caught a career-high 112 passes for 1,143 yards and 12 touchdowns.
But he struggled after leaving the Bengals. He had 79 catches for 911 yards and three touchdowns in Seattle in 2009 before bottoming out last season with the Ravens when he had only 30 catches for 398 yards and three touchdowns. His tenure in Baltimore ended with a key fourth-down drop in a playoff loss to Pittsburgh last January.
"He's a guy that made a lot of catches when it was sticky," Jackson said Monday before Houshmandzadeh signed. "With people draped all over him, he made some uncommon plays for us in Cincinnati. That's all I can go by in Cincinnati. I did not coach him in Seattle, I did not coach him in Baltimore. That's why I have to take a great look at the player. It's been a while."
He apparently liked what he saw because the Raiders signed him. Houshmandzadeh gives Oakland a veteran receiver on a unit that is mostly young and unproven.
Third-year player Darrius Heyward-Bey leads the team with 27 catches for 434 yards, but no other wide receiver has more than 15 catches so far this season. Speedster Jacoby Ford has been slowed by various injuries, rookie Denarius Moore had a fast start before leveling off, veteran Derek Hagan has one catch in the past three weeks, Louis Murphy has no catches in his two games and Chaz Schilens has caught more than two passes just once all season and missed the most recent game with a hamstring injury.
It's not immediately clear how quickly Houshmandzadeh can step in and contribute but his rapport with Palmer and knowledge of what Jackson likes to do should help speed the transition. The Raiders were off Tuesday before resuming practice Wednesday to prepare for this weekend's home game against Denver.
"He's a player. That might be a nice fit right there," cornerback Stanford Routt said Monday when told that Houshmandzadeh was working out with the team. "Our receivers are doing real good right now, in my opinion, with the explosiveness and all the young guys that we got. There are so many, I can't even name them all. Just adding one more play-maker to the puzzle, I don't see how that can do anything but make us even better."
Information from The Associated Press contributed to this report.