In the 2005 Copa Sudamericana, which Boca won, Palacio scored a hat trick in the quarter finals against Sport Club Internacional on 10 November 2005 which ended 4-1. He also scored the opening goal in the first leg of the finals against Pumas UNAM, contributing greatly to Boca’s championship. Palacio was the third top scorer with 5 goals, behind Bruno Marioni and Jorge Quinteros.

Palacio played his first match with the Argentina national team on 8 March 2005 in a friendly match against Mexico which ended in a 1–1 draw at Los Angeles Memorial Coliseum. Later that month, on 25 March, he played his first competitive match, a 2-1 away victory in a 2006 FIFA World Cup qualifier against Bolivia, with Palacio playing the last eight minutes of the match. He was selected by the coach José Pékerman for the following year’s World Cup, and was given the shirt number 14. He made his debut in the tournament, entering the pitch in the 64th minute and helping the team win the first match of Group C against the Ivory Coast in a 2–1 victory. He did not play any more matches until the end of the tournament, with Argentina being eliminated from the tournament in the quarter-finals after losing 4–2 on penalties (1-1 in extra time) against Germany.

In the 2006 Recopa Sudamericana, Palacio scored two goals in the first leg and one in the second leg to help Boca beat São Paulo and win their third Recopa.

On 26 April 2007, Palacio scored two goals in a 7-0 demolishing of Club Bolívar in the 2007 Copa Libertadores. On 24 May 2007, he scored the last goal in a 2-0 win over Club Libertad in the quarter-finals. Palacio also scored the opening goal of the finals 1st leg against Grêmio, which ended in a 5-0 aggregate win for Boca. (2-0 and 3-0).

In December 2007, Palacio participated in the 2007 FIFA Club World Cup, playing in Boca Juniors’ 1–0 victory over Tunisian club Étoile du Sahel on 12 December. On 16 December, he would score an equalizer to make the score 1–1 against Milan, as the Italian side eventually won 4–2. Palacio earned the Bronze Ball trophy in the tournament, being ranked as the third best player behind Milan players Clarence Seedorf and Kaká respectively. Palacio’s performance in the 2008 Copa Libertadores helped Boca avoid elimination from the group stage by scoring twice against Mexico’s Atlas in a 3–0 home victory and scoring the third goal in Boca’s dramatic 4–3 win against Chile’s Colo-Colo. On 7 May 2008, Palacio scored the first goal in a 2–1 second-leg win against Brazilian club Cruzeiro. Boca eventually reached the semi-finals, where they would lose to Fluminense 4-1 on aggregate.

Despite a minor injury that would see him sidelined for a small portion of the second half of the year, Palacio would then go on to win the Recopa Sudamericana against Arsenal de Sarandí, scoring one goal in the first leg and another goal in the second leg. He later won the 2008-09 Torneo Apertura after the title had to be fought out between the top three teams that were equal on points, Boca, San Lorenzo and Tigre. The championship play-offs were all held at Racing Club’s stadium in a round-robin format and were held in December 2008. Palacio would score in a 3–1 win against San Lorenzo to help claim the title.

On 15 June 2008, more than three years after his debut with Argentina, Palacio scored his first goal for his country via equalizer in the 93rd minute in a 1–1 draw against Ecuador for the 5th round of 2010 World Cup qualification. He played only two matches in 2008, and did not play any minutes for the national team during 2009 and 2010, meaning that he was not included in the squad for the 2010 World Cup by coach Diego Maradona.

In July 2009, Palacio signed a contract with Italian club Genoa. His debut in Serie A was on 23 August, in a 3–2 win over Roma. On 5 November, he scored his first goal for the club in the UEFA Europa League match against Lille, which ended in a 3-2 victory for Genoa. In Serie A, the striker scored his first goal against Parma, the team in which he also scored a double against in the return leg, a 3-2 away win. 2 years after his debut, Palacio also entered in Coppa Italia statistics with a brace in a 4-3 win against AG Nocerina. In the last two weeks of January 2012, Palacio scored two braces: one in a 5-3 loss against Palermo, and the other in a 3-2 win against Napoli. On his last appearance for Genoa, the hundredth overall, he received a red card against Udinese.

Palacio has a daughter named Juana that was born in May 2010 in Bahía Blanca. His father, José Ramón Palacio, was also a footballer.

After his good form with Genoa during the second part of the 2010–11 season and first part of 2011–12, Palacio received his first call-up by new national team coach Alejandro Sabella for the 2014 World Cup qualifying match against Venezuela. On 11 October 2011, he played his first match for the national team after a three-year absence, entering the field in the final 15 minutes of a 1–0 loss against Venezuela, with defender Fernando Amorebieta scoring the only goal of the match.

On 22 May 2012, Genoa president Enrico Preziosi confirmed that Palacio would join Inter for the 2012–13 season. On 7 June, he was officially sold to Inter for €10.5 million, signing a three-year contract paying the player €2.7 million per year.

On 14 February 2013, in a match against Romanian side CFR Cluj in the first leg of the Europa League Round of 16, Palacio was substituted in seven minutes into the game after a season-ending injury to starter Diego Milito. Palacio came on and finished the game with both goals scored in a 2–0 victory. On 3 March, against Catania, Palacio was substituted in at the beginning of the second half at a time when the Nerazzurri were down 2–0. Palacio went on to provide an assist for Ricky Álvarez’s goal, then scored twice himself, leading Inter to a 2–3 comeback victory. On 3 April, Palacio scored his second double of the league season against Sampdoria, raising his tally to 12 goals scored; in the same game, however, he strained his left hamstring, ultimately ending his season prematurely.

After an impressive 2012–13 season with Inter, Palacio became a regular member of the Argentina national team under Sabella. During the qualifiers for the 2014 World Cup, he played eight matches and assisted several goals that helped Argentina finish first place in its group with 32 points. He scored his second goal for Argentina on 11 October 2013, scoring the third goal in the 3–1 victory against Peru in round 17 of the qualifiers.

On 15 February 2014, Palacio scored his first goal of 2014 after some negative displays during the 2–1 away win against Fiorentina. On 9 March, he scored the winning goal against Torino at the San Siro, giving Nerazzurri three important points. Five days later, Palacio signed a new two-and-a-half year contract with Inter which will keep him at the club until 2016. One day after he extended his contract, Palacio scored the opening goal and assisted Jonathan Moreira’s goal in the 2–0 away win against Hellas Verona. Palacio continued with his good appearances by scoring his 15th league goal in the 4–0 thrashing of Sampdoria at the Stadio Luigi Ferraris. He also assisted both goals from Mauro Icardi.

Palacio’s good form continued in 2014, scoring the opening goal of the match after a corner kick taken by Ángel Di María on 4 June in a 3–0 win against Trinidad and Tobago. Later in that match, he made a good run by dribbling the goalkeeper and assisted the third goal of the match scored by winger Ezequiel Lavezzi. After playing another friendly match against Slovenia, the team traveled to Brazil to play in the 2014 World Cup; he was included on the list of 23 players selected by coach Alejandro Sabella to participate. Notably he received a brilliant opportunity to score in the final against Germany during the 7th minute of extra time, when he received an exceptional pass from Marcos Rojo and controlled it with his chest, which left him one-on-one with the keeper, but his attempt to lob the ball over Manuel Neuer missed the goal completely. After the match, a phrase that said “Era por abajo, Palacio” (It was through the bottom, Palacio) became viral.

On 8 September 2014, at the age of 32, Palacio retired from international football, saying that there are better players to take his spot on the national team.

On 19 February 2015, Palacio scored two goals in a 3-3 draw vs Celtic, which helped Inter qualify for the round of 16 of the Europa League. In the round of 16 against Wolfsburg, he scored both goals in Inter’s 5-2 aggregate loss (3-1 and 2-1). He opened the scoring in the final game of the season, a 4-3 win against Empoli. Palacio finished behind Mauro Icardi for top scorer with 12 goals, scoring 8 in the league and 4 in the Europa League.

Palacio scored his first goal of the season on 15 December 2015 in a 3–0 win over Cagliari at the San Siro, moving Inter on from the Coppa Italia’s round of 16. On 8 January 2016, he extended his contract with Inter for a further season, keeping him at the club until June 2017. He didn’t score his first Serie A goal for the season until 24 January 2016, opening the scoring in a 1-1 draw against Carpi. On 2 March, in a Coppa Italia match against Juventus, Palacio missed a penalty, which contributed to Inter’s elimination after tying 3-3 on aggregate and losing 3-5 on penalties. Over all it was a subpar season from him, scoring just 3 goals in 30 appearances across all competitions.

On 29 September 2016, he scored Inter’s only goal in the 3–1 defeat Europa League group stage defeat against Sparta Praha. He scored a goal against his future club Bologna to eliminate them from the Coppa Italia round of 16 with a 3-2 win on 17 January 2017. He only scored 2 goals that season, one in the Europa League, one in the Coppa Italia, and none in Serie A. With his contract lasting until the end of this season, he played his last game for Inter on 28 May 2017.

On 17 August 2017, Palacio signed a one-year contract with Bologna.

On 6 July 2018, Palacio renewed his contract, signing an additional year until 30 June 2019.

Palacio began the season with a muscle injury in training, which ruled him out for 3 weeks. He returned to the team on 21 October 2018, in a 2-2 draw against Torino, being subbed off at the 80th minute. In the next game, he scored just 2 minutes into the game in a 2-2 draw at Sassuolo. On 16 March 2019, Palacio assisted Bologna’s third goal to help Bologna beat Torino 2-3 in Turin.

Palacia renewed his contract again on 4 July 2019, adding another year that will run through 30 June 2020.

Palacio kicked off the season in the Coppa Italia, scoring the last goal in a 0-3 away win at AC Pisa on 18 August 2019. On 15 September, he scored and assisted Riccardo Orsolini’s winning goal in a 3-4 victory against Brescia after trailing 3-1 at half-time. On 1 February 2020, he assisted Mattia Bani’s 90th minute game winner vs Brescia, a 2-1 victory.