The 24-year-old has signed a three-year deal at the KC Stadium with the option of the club extending the contract for a further year.
Hernandez, who was part of Uruguay's World Cup squad this summer, scored 14 goals last season as Palermo won Italy's Serie B title.
Tigers boss Steve Bruce said: "Abel is a fantastic signing and highlights just how far the club has come in such a short space of time.
"He is an exciting talent and like myself, I'm sure the supporters can't wait to see him in action."
Hernandez's arrival follows the departure of George Boyd to Burnley on a three-year deal
Source : PA
Source: PA