The Hornets opened the scoring on 28 minutes through Marlon King but Iain Dowie's Eagles were outstanding after the break.
Ben Foster had a most unfortunate time in the Watford goal after first saving a penalty only to watch Dougie Freedman stroke the ball past him.
And he had no chance of stopping two own goals going into the net as Palace emerged deserved 3-1 winners.
Palace started strongly and Watford had to rely on Malky Mackay who was forced to make a couple of crucial clearances.
But the Hornets soon settled and Darren Ward had to clear off his own line with Ashley Young poised to force the ball home.
Ben Watson curled a 25-yard free-kick just wide of the upright, while at the other end Chris Eagles fired recklessly over the bar.
But it was Watford who went in front on 28 minutes. The Palace defence was caught square as skipper Gavin Mahon slipped through a neat pass into the path of King and the Watford hitman rounded Gabor Kiraly before stroking the ball into the empty net from 12 yards.
The Hornets were operating confidently and keeping a tight rein on Andy Johnson in particular.
But the Palace striker did have a half-chance as his overhead kick was neatly saved by Foster.
After the break Palace came out with all guns blazing, although they lost Johnson who was stretchered off after an accidental collision with Foster.
But substitute Freedman wasted no time in putting Palace on level terms after 55 minutes.
Lloyd Doyley clumsily clattered into Jobi McAnuff, and although Freedman's effort from the spot was brilliantly saved by Foster, the Palace striker reacted quickly to poke the rebound into the empty net.
After another five minutes Palace were ahead after Fitz Hall launched a long throw which skidded off the head of Jordan Stewart and over his own keeper into the far corner of the goal.
Five minutes from the end Watford suffered more bad luck when Tom Soares made excellent progress to the byline before crossing low into the goalmouth.
Jay DeMerit and Clinton Morrison both went for the ball but it was the unfortunate Watford defender that got the touch which flew past Foster for another own goal.