The 2014 champion of the GP2 feeder series, Palmer won the drive following a series of appearances in practice for the team this season.
"We've seen Jolyon's hard work and talent in the way he has approached his role. He is a really popular choice for the team," said team boss Gerard Lopez.
"As well as having a great future ahead of him behind the wheel, Jolyon is an intelligent and highly marketable asset to the team. He deserves this opportunity."
Palmer said: "I'm obviously delighted that I'll be racing in F1 next year.
Jonathan Palmer on his way to a career-best fourth in his Tyrrell Cosworth during the 1987 Australian GP
Lotus are in the process of being taken over by Renault, which announced last month that it had signed a letter of intent to buy a controlling interest in the team.
However, although the team are designing their new car around the Renault engine, the deal has not yet been formally confirmed.
Lopez is expected to stay on as a minority shareholder, while Frenchman Frederic Vasseur, the boss of the successful ART GP2 team, is poised to be named team principal.
Four-time F1 world champion Alain Prost is expected to have an advisory role with the reconstituted Renault team.
Palmer chats to his dad Jonathan during this year's Japanese Grand Prix
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