Having found themselves 2-0 and later 3-2 down at the break, two superb goals from Kadell Daniel and Kwesi Appiah were enough to turn the result around and hand Gary Issott his first win as under 21s manager.
Eagles legend Atillio Lombardo named a strong side to face his former club including John Guidetti, who hit 20 goals during a loan spell with Feyenoord last season, and Dedryck Boyata who has previously featured for the City first team. Meanwhile Darcy Blake was named in the Palace side as the Welshman aims to put his injury plagued spell behind him.
The home side enjoyed the majority of the possession early on but Palace kept their opponents at bay with City unable to force David Gregory into a meaningful save during the opening 30 minutes.
However the final 15 minutes of the half turned into an absolute rollercoaster for the visitors, who slipped behind when hot prospect Guidetti netted his fifth goal in his last four games at this level. A City corner wasn't properly cleared and the Swede's deflected shot from a tight angle found its way into the back of the net to hand his side a deserved lead.
Eight minutes later and the Citizens established a two goal lead when Boyata bundled the ball over the line from another corner but an incredible rally before the break saw Palace go into the interval level thanks to a double from Ibra Sekajja.
The Eagles striker scored two well-composed efforts in the 40th and 42nd minute to draw his side level but unbelievably City once again managed to get their noses in front at the break when recent acquisition Seko Fofana met a cross at the back post and tucked the ball under the dive of Gregory.
The City bench may have believed their side wouldn't make the same mistake again, but Palace came out in the second half determined to restore parity and they managed to do so through Daniel's thunderbolt from the edge of the box just before the hour mark.
And City were hit with the old one-two once again three minutes later when the ball was controlled well by Appiah, and his brilliant volley sailed over the despairing Ian Lawlor and into the net for a second fantastic finish as the battling Eagles finally found themselves ahead after seven goals scored either side of half time.
Just as the first half hour had been a tight scoreless affair, so was the final 30 minutes as Palace comfortably held the home side at bay to collect their first win of the second half of the season in a game that will live long in the memory for those in attendance.
Crystal Palace: Gregory, Akuruka, Parsons, Dymond, Inniss (Allassani 76), Blake, Kaikai, O'Keefe, Appiah (Boateng 89), Sekajja, Daniel