A battling Palace performance was not enough to put the skids on league leaders Watford as a goal in each half won the game for the visitors.
Goals from Tommy Smith and Marlon King meant that Neil Warnock is still waiting for his first win as Palace manager, but the hosts were boosted by the promising debut of 15-year-old John Bostock, who becomes the youngest ever player to reperesent the club.
Warnock pledged to make changes after last Tuesday's 3-1 defeat at Stoke and, true to his word, the Palace manager put out a new-look side for the clash against Championship leaders Watford.
In all, he made five changes. There were debuts for 17-year-old academy product Lee Hills at left back and on-loan Portsmouth right winger Franck Songo, just hours after completing his one-month move to Selhurst.
Experienced Scot Dougie Freedman was rewarded for his goal against Stoke with a place in attack and Jose Fonte was also promoted to the starting line up, this time in central defence, after coming on at right back in the same game.
Left midfielder Jeff Hughes was given his first start under the new boss as Dave Martin and Clinton Morrison were demoted to the bench. Leon Cort and Tony Craig were not selected, while Paul Dickov was ruled out with injury.
There were more unfamiliar faces on the bench, most notably 15-year-old midfielder Bostock. He sat alongside Besian Idrizaj and centre back Moses Swaibu, another teenager yet to appear in a first team squad prior to this game.
As the teams emerged from the tunnel before kick-off, a large black flag with the words 'One Game One Community' was carried out by the ball boys and girls to signify Palace's support for the Let's Kick Racism Out Of Football organisation.
Palace started brightly, taking the game to the visitors, with Songo'o's pace and trickery particularly eye-catching. On 16 minutes, Freedman just failed to reach Ben Watson's dangerous ball across the face of goal.
Eight minutes later, Marlon King showed hints of his menace when, in the area, he turned in front of Mark Hudson and struck towards goal, But Hills covered well and got a crucial deflection that diverted the shot wide.
Lawrence then received a booking for a trip on O'Toole and, with their first real goal threat Watford took the lead. Darius Henderson nodded to strike partner King, whose effort was saved by Julian Speroni. But Tommy Smith powered the rebound home, in off the post.
The visitors grew in stature after the goal, controlling the game mainly through the probing of Smith down Palace's left hand side.
Palace finished the half strongest though, with Songo'o's free kick charged down and Mark Hudson's header ending in the stands.
The second period began with King seizing on a clearance from Hills. The Watford striker's chip was sublime, but the ball dipped just over the bar to prevent the visitors from doubling their lead.
On 51 minutes, Hills put in a lengthy throw that found Hudson in the middle of the area, but the defender's header lacked power.
Clear-cut chances were in short supply, though when Lawrence's cross was unexpectedly flapped by Watford stopper Richard Lee, a mini-scrambled ensued. However, neither Freedman nor James Scowcroft could force the ball into the net.
Idrizaj replaced Freedman as Warnock attempted to inject another dimension into the home side, but it was Watford who looked the more menacing.
On 66 minutes, Jordan Stewart's cross was headed wide by an unchallenged Henderson at the back post. It was a warning to the Palace defence and, a minute later, Watford sealed the game.
Adam Johnson's mazy run was too hot to handle for the Eagles backline, and he set up King to slot home Watford's second from the edge of the area.
The prospect of a second successive home defeat gave Warnock the licence to throw caution against the wind, and he replaced midfielder Hughes with Morrison and gave Bostock a first historic start.
Aged just 15 years and 287 days, Bostock became the youngest player to represent Palace, beating previous record holder Phil Hoadley, who was 16 and 112 days old when he played for the Eagles at Bolton Wanderers on 27th April 1967.
The youngster's impact was immediate. Showing remarkable confidence on the ball, he struck a right-footer wide from 25 yards and then, on 77 minutes, demonstrated proficiency on the call to set up Songo'o, whose effort again missed the target.
Bostock's arrival appeared to lift the whole Palace team, and they finished the match much the better side. On 81 minutes, good work from Idrizaj on the left led to a scramble in the penalty area that saw Morrison's overhead kick cleared away.
A minute later, Palace had a genuine penalty shout when Hudson was apparently pulled to the floor by visiing skipper Gavin Mahon. Home fans in the Holmesdale End erupted with indignation at Mr Stroud's decision not to award a spot kick. And those calls seemed to be justified when the centre back, after being treated on the sideline, returned to the pitch with his head heavily strapped.
Almost immediately, Hudson glanced Songo'o's free kick wide of the nesr post. If that would have made a good story, had Bostock's free kick with three minutes remaining found the back of the net, a real landmark would have been reached.
But Warnock's real desire for his first three points as Palace manager will have to wait until at least the trip to Scunthorpe on Saturday.
Crystal Palace: Speroni, Lawrence, Hudson, Fletcher (c), Scowcroft, Freedman (Idrizaj 66), Watson (Bostock 72), Fonte, Hughes (Morrison 72), Songo'o, Hills.
Subs not used: Martin, Swaibu.
Booked: Lawrence (30)
Watford: Lee, Stewart, Shittu, DeMerit, Mahon (c), King (Ellington 76), Henderson (Priskin 75), Doyley, Smith (McAnuff 69), O'Toole, Johnson.
Subs not used: Loach, Mariappa.
Goals: Smith (33), King (67)
Booked: Mahon (50)
Attendance: 13,986.
