Born in La Ceiba, he played for Victoria and Olimpia in Honduras before moving to England, where he played for Birmingham City and Wigan Athletic. In 2009, he joined Tottenham Hotspur, generally playing central defensive midfield as he did for Wigan, though he was occasionally used as a right midfielder for Spurs. In August 2011, Palacios joined Stoke City for an undisclosed fee believed to be around £6 million. He struggled to make an impact in his four seasons at Stoke, however, and left the club in 2015. He subsequently had a spell in the North American Soccer League with Miami.
He has been a regular player for Honduras since 2003, helping them qualify for the 2010 and 2014 FIFA World Cup editions.
Palacios, along with brothers Milton, Jerry, Johnny and Edwin, started his career as a footballer with Victoria, from which all five players were later transferred to Olimpia.
Palacios made 102 appearances and scored 32 goals for Olimpia. He became one of the idols of the team and quickly started to attract international attention after winning five league titles with Olimpia in the 2002–03 Apertura tournament, as well as the 2003–04 Clausura, 2004–05 Clasura, 2005–06 Apertura and the 2005–06 Clausura tournaments. He is especially remembered for scoring a goal from the half-way line against Marathón in the final minutes of a game in 2006 to win the 2005–06 Clausura tournament to become champions of Honduras.
After having a very successful career in Honduras, Palacios looked to make his name in the European leagues. On 14 July 2007, Palacios announced that he would travel to Serbia for a couple of months for a trial with Red Star Belgrade. He stayed for less than a month and despite impressing during his stay, he did not join the club after Red Star refused to pay the transfer fee demanded by Olimpia, and a salary of, reportedly, US$1.5 million for a three-year contract. After his trial in Serbia, Palacios traveled to France to try his luck with AS Monaco. It is not known what happened but he did not sign a contract and returned to Honduras. In August 2007, there were reports in the Honduran press that Palacios had gone missing, until his father stated that his son was actually in London having a trial with Premier League club Arsenal.
On 24 August 2007, Birmingham City announced that after a recommendation from Arsenal manager Arsène Wenger they were offering Palacios a trial with a view to a six-month loan, which was agreed on 31 August 2007. He made his debut for Birmingham against Liverpool at Anfield in a 0–0 draw on 22 September. In October 2007, Birmingham manager Steve Bruce, who likened Palacios to a young Paul Ince, said that Birmingham intended to make his loan a permanent transfer. but the player's absence following his brother's kidnap meant that new manager Alex McLeish had not seen enough of him to sign him permanently.
On 11 January 2008, Palacios re-joined Bruce at Wigan Athletic for an undisclosed fee, and made his debut the following day against Derby County. He became an important piece in Steve Bruce's scheme and was linked to the likes of Manchester United, Liverpool, Bayern Munich and Real Madrid. Then, on 16 January 2009, Steve Bruce declared that the deal with Tottenham Hotspur for Palacios was "virtually agreed." However, he bemoaned the loss of his "right arm" and declared he did not want to lose "one of [his] best players" after he has become "one of the best midfield players in the country." Despite Bruce's attempts to keep him at the JJB Stadium, however, the deal was confirmed five days later.
Despite having reservations about moving to North London from North West England where he was settled, Palacios agreed personal terms on a 5 1⁄2-year contract with Tottenham Hotspur, committing his future to the club until 2014. On 21 January 2009, the club announced to the London Stock Exchange that they had agreed a fee of £12 million for Palacios and that the player had agreed personal terms and passed his medical, but that the transfer could only be completed once he received a work permit. He made his Tottenham debut in a 3–2 defeat to Bolton Wanderers on 31 January, and assisted with the second goal after Bolton goalkeeper Jussi Jääskeläinen stopped Palacios' low shot and teammate Darren Bent put in the rebound.
His battling performance in his second match, against local rivals Arsenal, earned him the man of the match award. Since then, he has had some excellent performances in the Spurs midfield. Palacios scored his first goal in English Football against Hull City on 19 August 2009 after a through ball by Robbie Keane. After scoring, Palacios pointed towards the heavens in honour of his brother, Edwin Palacios, whose body had been found earlier in the year after being murdered. His performance at Hull earned praise from manager Harry Redknapp. During the 2009–10 season, he played 43 matches for Tottenham and helped the club reach the UEFA Champions League for the first time. The following season, Palacios was restricted to 21 appearances in the Premier League, though he did play a key role in Tottenham's run to the quarter-final of the Champions League.
Palacios joined Stoke City on 31 August 2011, signing a four-year contract along with fellow Spurs teammate Peter Crouch. The fee was undisclosed but was believed to be around £6 million. He made his debut for Stoke in a 1–0 win against Liverpool on 10 September 2011. The start to his Stoke career, however, was restricted by a knee injury and tonsillitis. Palacios eventually made his first league start on 21 December 2011 away at Manchester City. By March 2012, Palacios still had not managed to become a regular in the side, playing mostly in substitution roles, though he did start the majority of the team's European fixtures. Manager Tony Pulis revealed that his fitness level and a long-standing knee injury had been the problem and that the fans would not see the best of him before he had undergone a full pre-season training schedule. However, he was unable to get into the starting line-up in 2012–13, making just four league appearances, all as a substitute.
Palacios was due to start the first match of the 2013–14 season away at Liverpool after being named by Mark Hughes in the starting line-up, but he pulled out after feeling ill in the warm-up and was taken to hospital where he underwent a "minor surgical procedure." Palacios enjoyed more playing time under Hughes in 2013–14, playing 21 times as Stoke finished in ninth in the Premier League. Stoke tried to sell Palacios in the summer of 2014 to Middle East side Qatar SC, but he failed a medical. This saw him overlooked by Mark Hughes for the 2014–15 season, as he did not make any appearances and was ultimately released at the end of the season; he made 53 appearances in four seasons. Despite his poor time at Stoke, Chairman Peter Coates defended signing him: "He was such a good player at Wigan and Spurs, where he only lost his place to Luka Modrić. We certainly thought at the time we were getting a very good player, but for whatever reason it hasn't worked out. I know he has had personal problems in the past – his brother was kidnapped and killed in 2009 – but sometimes you just don't know the reason why things don't work out. It's a great shame because it has cost us a huge amount of money, but it's also a shame for the player because his career hasn't developed either. We all lost. He did, we did."
Following his release from Stoke, Palacios went on trial at Hull City, though he did not sign with the club. On 10 December 2015, Palacios joined newly formed North American Soccer League club Miami. He made 18 appearances during the 2016 season before being released in November 2016.
Palacios wears the number 8 jersey with the Honduran national team. He made his debut for the senior squad in an April 2003 friendly match against Paraguay and, as of February 2013, he has played 82 matches with Honduras, scoring four goals in an international career lasting since 2003. He is also one of the most well-known Honduran international players alongside striker David Suazo.
In the 2010 FIFA World Cup, held in South Africa, Honduras achieved an historical distinction by including Jerry, Johnny and Wilson Palacios in their squad. They became the first trio of brothers to represent a single nation in the World Cup.
Palacios was sent-off in the first half of their opening game of the 2014 World Cup against France for two-bookable offences; Honduras went on to lose 3–0.
Wilson Palacios is the brother of Milton, Jerry, Johnny and Edwin.
On 30 October 2007, Palacios' brother Edwin, then aged 14, was kidnapped by five armed men from the family home in La Ceiba. In November 2007, the family paid a £125,000 ransom and it was reported that the boy had been released, but this proved not to be the case.
In January 2009, Palacios' mother made a televised appeal for the kidnappers to open communication with the family, expressing her need to find out if Edwin was still alive, her fears that Palacios' big-money transfer to Tottenham would only strengthen the kidnappers' demands, and a request for help from the British authorities. She stressed that Palacios' team received the transfer fee but the player had only his salary, and that the family's situation was distressing for him.
On 8 May 2009, following a confession from two leaders of the 18th Street gang, police found a body in the municipality of El Paraíso which they believed to be the remains of Edwin. Palacios returned home to Honduras the next day on compassionate leave. On 28 May, the body was confirmed as that of Edwin, and his funeral was held the following day in La Ceiba. On 30 May, despite his loss, Wilson Palacios joined up with the Honduran national team to train in preparation for the World Cup qualifying games against the United States and El Salvador.
In September 2011, Palacios had his car confiscated by Staffordshire Police after he failed to provide them with his driving licence.As of match played 23 October 2016
As of match played 25 June 2014.
Scores and results list Honduras' goal tally first.
Liga Nacional de Fútbol de Honduras (5): 2002–03 Apertura, 2003–04 Clausura, 2004–05 Clausura, 2005–06 Apertura, 2005–06 Clausura
Tottenham Hotspur Football Club 'Team Player Of The Year': 2009–10