The Eagles had failed to win their previous six Championship matches but deservedly took three points after netting four on Saturday.
Much-vaunted teenager Wilfried Zaha opened the scoring in south London, turning home a Jermaine Easter cross from close range in the 22nd minute.
Palace doubled their advantage as half-time approached through Chris Martin, who had time and space to head home a Darren Ambrose free-kick. The on-loan Norwich striker netted his second five minutes into the second period, before Kagisho Dikgacoi's bundled effort squirmed under Scott Loach.
The final three goals came courtesy of defensive mishaps at set pieces and brought Watford's four-game unbeaten run to an abrupt end.
Palace manager Dougie Freedman chose the same side that threw away a two-goal lead to draw 2-2 at Bristol City on Tuesday.
The Hornets came into the encounter off the back of an impressive 3-2 win over Leicester, with Craig Forsyth handed a start after netting the midweek winner in place of the injured Sean Murray.
Sean Dyche's Watford side bossed the opening exchanges, with on-loan Alex Kacaniklic and Jonathan Hogg firing early chances wide as the rain hammered down in south London. The former curled a free-kick straight at Julian Speroni as Watford continued to press forward, leaving gaps that the hosts were patiently trying to capitalise on.
Ambrose twice saw attempted crosses blocked as Palace began to press, before Easter fashioned a 22nd-minute opener.
The striker did well to get down the right flank and send over a cross that Zaha converted inside the six-yard box with Loach unable to stop the ball going off him and in.
The goal spurred Palace into life and, after Forsyth forced Speroni to parry a long-range drive at the other end, the hosts doubled their advantage.
Ambrose fired a deep free-kick into the penalty area and Martin lost his marker to head home with ease in the 38th minute.
Dyche brought on Gavin Massey in a bid to change things at half-time, but more poor defending allowed the home side to extend their lead in the 50th minute.
Another Ambrose free-kick found Easter, who squared the ball across the six-yard box for Martin to tap home unchallenged.
Watford were playing good passing football despite the scoreline, which got worse for the visitors in the 64th minute.
Dikgacoi connected with an Ambrose corner, with the ball squirming under Loach as Easter attempted to get the final touch.
The game became scrappy as the weather conditions worsened, with substitute Sean Scannell almost deflecting home a Loach kick before McCarthy almost put into his own net.
However, that was the closest Watford came as the 1,116 visiting support witnessed their side fail to beat Palace for a sixth successive Championship game.