After the relegation of Brescia, he was signed by Palermo on 1 July 2005, for €9 million., with €3 million being converted to the signing of Davide Possanzini. He soon became Luca Toni's replacement, who left for Fiorentina. In the 2005–06 season, Caracciolo played 35 games, scoring 9 goals. In the next season, Caracciolo has limited chance since the arrival of Amauri and David Di Michele. He scored only 5 goals in 27 matches, and made 17 starts.