The move marks a rapid rise for Palestra, who has progressed from Italy's third tier with Atalanta's under-23 side to Chelsea in the space of three years.
He made his senior Atalanta debut in the Europa League in December 2023, but it was his loan spell at Cagliari last season that accelerated his development, culminating in his senior debut for Italy during the high-pressure World Cup play-offs.
At Cagliari, Palestra attempted 73 dribbles over distances of more than 5m - the most by any defender in Serie A - with only Juventus winger Kenan Yildiz recording more in the competition.
Palestra's 70 successful dribbles were the highest of any defender across Europe's top 10 leagues, while he won 15 fouls in the final third, the joint-most by a defender in Europe's top five leagues last season, according to Opta data.
No player in Serie A covered more distance at sprinting speed during his loan spell at Cagliari.
It was a campaign in which Palestra went from strength to strength. Former Cagliari sporting director Guido Angelozzi, who signed him last summer, told BBC Sport the club faced strong competition from across Italy and Europe to secure his services.
Angelozzi said they provided Palestra with the "right environment" to compete at a high level under pressure, while also allowing him the freedom to make mistakes. He added that Chelsea, along with other leading European clubs, had sought character references.
He said: "The first thing that struck me was his maturity. He is a very curious young man - always willing to listen, yet with a strong personality.
"He trained with intensity and constantly sought to improve. He is polite, level-headed and very serious about his daily work. These are traits that inevitably translate on to the pitch."
Chelsea watched Palestra for more than a year. They will know they are signing an attack-minded defender and are encouraged by Palestra's versatility - he can play at full-back or wing-back and began his career in central midfield.
His arrival may also be the first clue that Alonso will play a back-three system at Stamford Bridge, having used it to great effect when leading Bayer Leverkusen to their first Bundesliga title in 2024.
Angelozzi added: "As a player, Marco combines technical quality with footballing intelligence. He has a great sense of timing, the ability to read situations and a natural ease in making decisions under pressure - qualities that are rare at his age.
"But what I appreciate most is his willingness to make sacrifices. He is a player who works for the team, accepts tactical instructions and never rests on his laurels.
"Like all young players, he still has room to grow, but the foundation is very solid. If he maintains this mindset, I believe he has all the qualities to build a top-level career.
"Today he is a more complete, mature player and, above all, mentally ready to step up to an even higher level."
Chelsea will take encouragement from having secured Palestra despite strong interest from Inter Milan, while Atalanta had been keen to retain him and clubs including Juventus, Napoli and Roma were linked with a move over the past six months.