Terms of the deal weren't disclosed.
Palmer and Houshmandzadeh were Cincinnati Bengals teammates for six seasons, and both had their greatest NFL success when they were together.
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, making his only Pro Bowl.
But Houshmandzadeh struggled after leaving the Bengals. He had 79 catches for 911 yards and three touchdowns with the Seattle Seahawks in 2009 before bottoming out last season with the Ravens when he had just 30 catches. His tenure in Baltimore ended with a key fourth-down drop during a playoff loss to the Pittsburgh Steelers.
"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."
Jackson apparently liked what he saw because the Raiders signed him. Houshmandzadeh gives Oakland a veteran receiver on a unit that's mostly young and unproven.
"I think there are some positions where you have to be very careful when you put guys out there. I don't think the receiver position is one of those," Jackson said. "If a guy can run routes and catch and he's comfortable I think he's OK. I think a guy can go in there real quickly and play."
The Associated Press contributed to this report.