Eagles assistant manager Lennie Lawrence says that the 23 year old has struggled down south since going there for a year last January.
Palace boss Dougie Freedman snapped up Goodwillie on deadline day hoping that he could supply the London based outfit with much needed goals.
However, Goodwillie has made just one sub appearance since his move and was very unlikely to feature again.
"David Goodwillie has agreed to go back to Blackburn Rovers as he's struggled to settle in London", Lawrence told the Croydon Advertiser.
"It was in everybody's interests that he went back, so that's happened.
"He just couldn't settle and it's one of those things."