The U's had countless chances and Jamie Cureton and could have scored a hat-trick but the Championship's leading marksman was denied by the agility of goalkeeper Julian Speroni and also the woodwork in the last minute.
Palace were good value for their win, handed to them via lethal strikes from Jamie Scowcroft after 11 minutes and midfielder Ben Watson in the 69th minute.
Scowcroft had not scored since last November, but he proved deadly with a header from a narrow angle following an accurate cross by Carl Fletcher.
The U's had started the day with faint hopes of reaching the play-offs, although for this to happen they would have needed to win by a five-goal margin and also hope for defeats for Southampton, Stoke and Preston.
That was always going to be a long shot and Scowcroft's early opener made it even more unlikely.
Colchester blew several chances to equalise with Cureton, his strike partner Chris Iwelumo and skipper Karl Duguid all being denied by Speroni, who hardly put a foot wrong all afternoon.
The writing was on the wall when Watson's second-half shot sneaked under home keeper Dean Gerken to double Palace's lead.
There was no way back for the hosts, but they can still take consolation in finishing a marvellous tenth in the table in what is their first ever season at this level.
Having lost their first four games of the season, including the first two at home, Geraint Williams' men have continued to defy the odds.
Palace could have added to their own tally during the closing moments and Jobi McAnuff headed over from point-blank range with an empty goal beckoning.