Palmer, 24, will drive in a 'significant number' of Friday practice sessions as part of his deal with the team, which also includes test and development work and attending all Grands Prix and F1 tests during the year.
"My goal has been to become a race driver in a competitive F1 team for 2016 and Lotus F1 Team is a great opportunity for me, particularly with Mercedes engines now," Palmer said.
"I'm very grateful for the opportunity - to be able to learn with a major F1 team by working closely with them in every area and getting a lot of mileage in the car is the best way possible, as Valtteri Bottas proved.
"I am delighted to be joining Lotus F1 Team at such an exciting time and my objective is to earn a long term future with them."
Lotus chairman and team principal Gerard Lopez added: "Jolyon is a fantastic talent and a very credible driver to fulfil the role of third driver at Lotus F1 Team.
"Romain [Grosjean] and Pastor [Maldonado] are both GP2 Series champions, so we know what a fantastic proving ground GP2 provides. For Jolyon to have enjoyed such a successful season as he took his title last year shows his superb potential for the future. We are looking forward to seeing him in team colours and behind the wheel of our 2015 car, the E23 Hybrid, which represents an exciting new era for Lotus F1 Team."
Palmer clinched last year's GP2 crown in resounding fashion, winning four times and claiming 12 podiums en route to becoming the category's first British champion since two-time F1 champion Lewis Hamilton in 2006.
He has previous experience of F1 machinery, having driven for Force India in the season-ending Abu Dhabi test last year.