The club qualified for the Europa League after winning the FA Cup, their first major trophy, but missed a deadline to demonstrate compliance with UEFA regulations.
UEFA's ruling is based on American co-owner John Textor's stakes in both Crystal Palace and Lyon, with Lyon's higher league position taking precedence in the Europa League.
Hundreds of Crystal Palace supporters staged a protest outside Selhurst Park, organised by Holmesdale Fanatics, condemning UEFA's decision as a "terrible injustice" and "morally bankrupt".