Ben May headed the Lions in front four minutes before the break but despite defending solidly in the second half they just failed to holed out as Watson netted with virtually the last kick of the match.
The first half was somewhat scrappy but enough chances were created for the fans to maintain an interest.
Dougie Freedman's glancing header screamed across the goalmouth while at the other end Marvin Elliott mis-timed his header in front of goal following Jermaine Wright's cross from the right.
Andy Johnson, back from injury, was denied by Lions keeper Colin Doyle before Freedman rattled the crossbar on 35 minutes.
But Millwall went in front on 41 minutes after Mikele Leigertwood's clumsy tackle presented the Lions with a free-kick 30 yards out on the left.
Jody Morris' inswinging free-kick was allowed to travel to the far post by the motionless Palace defence and May had time and space to pick his spot with a header past Julian Speroni.
As expected Palace came out all guns blazing after the break, but Colin Lee's outfit were content to sit back. The Eagles had all the possession but struggled to break down the resolute Millwall defence.
Johnson had to feed off scraps and was given little room but still Watson, skipper Tony Popovic and substitute Clinton Morrison all had chances to equalise.
Former Palace man Bruce Dyer headed against the foot of the post and shortly after Gary Borrowdale had to clear off the line as Millwall looked to kill the game off.
But time seemed to be running out for Palace until Michael Hughes and Soares combined in midfield to feed Freedman who was situated just outside the box on the left side.
Freedman quickly spotted Watson running into space and the young midfielder stroked the ball home past Millwall keeper Doyle for a last-gasp equaliser.