On an evening in which heavy fog looked in danger of ending proceedings early at Vicarage Road, the home side took an early lead through Andreas Weimann.
But Palace, who went into the game on the back of Saturday's impressive draw against high-flying Norwich, battled back well to earn a share of the spoils through James Vaughan's sixth goal of the season.
Hornets manager Malky Mackay opted to hand Weimann, on loan from Aston Villa, his first start and the striker repaid his manager's faith immediately, putting the hosts ahead in the 10th minute.
Fellow loanee Andros Townsend was instrumental, cutting inside from the left wing before finding Weimann with a pinpoint cross which the striker volleyed home.
Not content with one, Watford pushed for a second with Weimann looking particularly threatening.
However, they nearly paid the price for their endeavour moments later as Darren Ambrose forced a smart save from Scott Loach.
The home side remained the game's dominant force, though, with Weimann sliding a clever ball across goal which Graham was inches away from converting.
The game became increasingly open thereafter and Palace felt they should have had the opportunity to restore parity when Adrian Mariappa hauled Vaughan down in the area, only for the referee to wave play on.
But the visitors soon levelled things up as Vaughan profited from Townsend giving the ball away, receiving the ball from Danns before jinking his way past Mariappa and firing past Loach.
Clearly looking to make amends, Townsend and Mariappa nearly linked up to put Watford back ahead. The former was instrumental, cleverly working his way to the byline before whipping in an delicious centre which Mariappa failed to convert.
Spurred on by the vocal away faithful, Palace started brightly after the interval.
And, after the game entered a lull, they nearly took the lead but Neil Danns was unable to get on the end of Wilfried Zaha's clever ball.
Surprisingly, Mackay opted to replace the dangerous Townsend midway through the second period with Daniel Drinkwater coming on.
However, that change had little impact as both sides struggled to create openings.
The Hornets did threaten to regain the advantage as Eustace found space just outside the area and forced an excellent save from Julian Speroni.
And, just when both teams seemed content with a point, Watford nearly claimed all three - but Eustace saw his effort cleared off the line.
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