In a tight and tense affair at a sunny Wembley, the match was decided right on the stroke of half-time in extra time, when Zaha was fouled by Hornets defender Marco Cassetti in the area.
Former Watford striker Kevin Phillips dispatched the spot-kick into the top corner for what proved to be the winner, sending Palace to the Premier League and leaving Watford dejected.
Speaking after the game, a downcast Zola chose to praise the opposition for their display, despite his obvious disappointment.
"It is tough for me and for everyone connected to Watford," he told Sky Sports. "It wasn't our best game but to lose in extra time to a penalty is hard to take.
"To be fair they played well and probably in the 90 minutes deserved more than us so congratulations to them. They did play very well.
"They had a player like Zaha who was on a different level and made the difference.
"When you play a game like this, it will be very tight. The difference can be made by individual qualities and today was the case."
Watford started with seven loan players in their line-up - six of whom are from Granada and Udinese, who are both owned by Watford's owners the Pozzo family.
With the Football League set to tighten rules on loan players ahead of next season, there are fears that Watford's side may break up - something denied by a defiant Zola.
"We're going to be stronger next year, that's for sure. This is the start for us," he added. "Everything we achieved this season, to be here playing was a big bonus for us. It was unexpected but we did it because it was deserved it.
"We are determined to be stronger next year. We will be stronger next year."