Last season's play-off semi-finalists were put to the sword in the first half at Selhurst Park thanks to strikes from 17-year-old striker Wilfried Zaha, Darren Ambrose and Alan Lee.
But Leicester dominated the second period and goals from Andy King and DJ Campbell saw them fall just short.
Palace boss George Burley and his Leicester counterpart Paulo Sousa were making their debuts in their respective dugouts and saw the best and worst of their new charges.
Julian Bennett was cleared to make his Eagles debut alongside fellow summer signings Andy Dorman and Owen Garvan after his move from Nottingham Forest went through late on Friday night.
Leicester's only summer buy, Tom Kennedy, took up a place among the visitor's substitutes.
In a sedate opening City's Lloyd Dyer fired a couple of speculative efforts past the Palace posts, but the home side started to gain the upper hand due to a greater sharpness and intensity in their passing.
In the 12th minute a dangerous cross from Ambrose narrowly evaded Lee, before Lee just failed to set-up Zaha in the area.
The game was developing an end-to-end feel and Zaha raised the excitement levels further when he scored his first senior goal in the 19th minute.
The youngster latched onto Lee's flick on and volleyed superbly beyond helpless Leicester keeper Chris Weale.
Lee was proving a handful for the Foxes defence and he won a free-kick in the 24th minute from which Ambrose cleared the crossbar.
But the former Ipswich playmaker's radar was on target moments later as he doubled his side's advantage
Lee battled away in the channel before giving the ball to Kieron Cadogan who teed up Ambrose to drill past Weale from the edge of the area.
It was 3-0 four minutes before half-time when Cadogan provided a teasing cross and Zaha turned sharply to get his shot off. Weale blocked the initial effort but Lee was left with a tap-in.
Matt Fryatt spurned a golden opportunity to get Leicester back into the game when he put Dany N'Guessan's cross wide from close range.
Dyer then produced a curling 18-yard effort to forced a sharp save from Julian Speroni with the final kick of the half.
The Foxes winger continued to threaten after the break and he fizzed a shot onto the crossbar in the 56th minute.
Moments later the visitors had a lifeline when King rose at the back post to head home Robbie Neilson's cross
Leicester were starting to dominate the midfield battle and this allowed Dyer to once again draw a stop from Speroni before Palace skipper Paddy McCarthy scrambled away Campbell's shot.
Substitute Steve Howard was unsettling the Palace defence, as evidenced when McCarthy and Claude Davis almost contrived to produce an own goal, only for Speroni to tip over superbly.
From the resulting 72nd minute corner Jack Hobbs put a free header wide, but Speroni was called upon again shortly after when King smashed goalwards.
Immediately Palace charged forward on the break and Weale was alert as Ambrose sought to finish the contest.
Burley's men were made to sweat when Davis made a hash of a clearance six minutes from time, allowing Howard in behind the defence and he squared the ball for Campbell to apply the finish.
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