In a match where neither side defended with any real resolve or confidence, the Hornets appeared to shake off the double disappointment of seeing Danny Webber miss a penalty and going behind, to draw level through a spectacular 25-yard free-kick from Neal Ardley and Micah Hyde's first goal of the season.
However, that was only the prelude for a remarkable passage of play in which four goals, including Hyde's was scored in an eight-minute spell spanning half time.
At first, Paul Robinson inadvertently appeared to put through his own net, although Danny Granville led the celebrations, before Hayden Mullins turned the game on its head again with his second goal in first-half injury time.
But the home side, who needed to respond quickly, got exactly what they required within a minute of the restart when the unmarked Heidar Helguson headed home on his full return to the Watford starting eleven.
After that it was Palace who probably had the better chances to win it, particularly when Andrew Johnson headed against the crossbar, but the visitors were forced to hang on to some degree for the last 15 minutes after the impressive Wayne Routledge had been harshly dismissed for a second yellow card.
Hornets boss Ray Lewington will probably be pleased to have salvaged something from a game his side could have lost, although he will be less than impressed with some of the defending which had previously stood up well in two tricky away trips.
Conversely, however, Palace manager, Trevor Francis is likely to view this as a case of two points dropped rather than one gained