The 21-year-old forward is expected to start against his former club on Sunday, having registered three goals and five assists in his last five Chelsea matches.
The £40million deadline day deal now looks like a steal for a player who left his boyhood club due to a lack of minutes under Pep Guardiola.
His decision to depart has been justified, having already played more Premier League games at Chelsea than he did in three years at City.
Asked whether he was surprised that City let Palmer join Chelsea, manager Mauricio Pochettino said: "I think it is not fair to say it surprises me just because now he is performing and he didn't play too much in City.
"We are two different clubs, with different objectives. Maybe he fits well for Chelsea.
"[Mateo] Kovacic left Chelsea for City and I don't know what happened. It's always difficult to judge these kinds of decisions."
Palmer is now Chelsea's first-choice penalty taker and scored the equaliser in a 4-1 win over Tottenham on Monday.
His eye-catching style has earned comparisons to Juan Mata and Dennis Bergkamp, but Pochettino had a different name in mind.
He said: “Juan Mata? No, he is more Di Maria! You know, the body and the way he moves.”
Palmer also set up Nicolas Jackson to complete his hat-trick in the crucial London derby win at Spurs.
Jackson had struggled for Chelsea so far this term, with fellow new signings Robert Sanchez and Moises Caicedo also having endured shaky moments since arriving in the summer.
“The club and team is very solid and structured in the way it operates,” he added.
“It is always easier than when you are at a club in the process of building something. They are ahead and when the player arrives in a very consistent organisation, they only have to think about performing.
“Of course, the percentage of chance a player can perform when they arrive at City is higher than here, at the moment.
"We are trying to find the best organisation, the best way to operate, the best way to play, how to know each other."