Two of Watford's goalscorers celebrate King's brilliant strike
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Watford scored three second-half goals to take a commanding lead into the second leg of their play-off tie.
Marlon King put Watford ahead with a superbly struck left-foot shot from the edge of the area.
Ashley Young scored with a curling free-kick and Matthew Spring cut inside before beating Gabor Kiraly late on.
Watford keeper Ben Foster saved from Jobi McAnuff, Tony Popovic and Emmerson Boyce while Andy Johnson and Clinton Morrison went close for Palace.
The second leg takes place at Vicarage Road on Tuesday and Watford, who finished third in the Championship table, are now clear favourites to reach the final on 21 May.
Malky Mackay made a great covering tackle to prevent Johnson from shooting with six minutes gone.
The action immediately transferred to the other end of the field, with King through on goal after defender Darren Ward erroneously allowed a long kick forward to bounce.
Ward was bailed out by his goalkeeper, who made an athletic save.
Watford, well organised and committed, look to burst forward with pace when in possession but in the opening half it was Palace who showed more craft in dangerous areas.
McAnuff cut inside before forcing a good save from Foster, while Johnson ran on to Watson's quickly taken free-kick before hitting the ball across the Watford keeper but inches wide of the far post.
An intelligent dummy from Johnson created space for Morrison, who curled the ball just wide from the edge of the area - and Palace ended the opening 45 minutes clearly in the ascendancy.
The complexion of the match changed in the opening minute of the second half with King's superb strike.
The Hornets striker collected a goalkick with his back to goal and, under pressure from Ward, swivelled sharply before smashing the ball home.
Palace looked to respond and Foster made a fine fingertip save to deny Popovic from equalising with a header.
But Watford's goal clearly affected Palace, who struggled to recreate the smooth flowing play that characterised their first-half performance.
Hornets boss Aidy Boothroyd had replaced striker Darius Henderson with midfielder Alhassan Bangura at the break and Palace struggled to come to terms with the congested midfield.
Their afternoon deteriorated further when Young's curling free-kick extended Watford's lead.
Watford, rampant by now, almost scored again but Kiraly saved Spring's free-kick.
Palace rallied with Foster saving from Boyce - but Spring delivered the final blow of a miserable afternoon for the home team with his strike five minutes from time.
Crystal Palace: Kiraly, Ward (Butterfield 65), Popovic, Fitz Hall, Boyce, Watson, Hughes, Soares (Freedman 65), McAnuff, Johnson, Morrison.
Subs Not Used: Leigertwood, Reich, Speroni.
Booked: Popovic, Fitz Hall.
Watford: Foster, Stewart, Mackay, DeMerit, Doyley, Chambers (Eagles 83), Mahon, Young, Spring, Henderson (Bangura 45), King.
Subs Not Used: Chamberlain, McNamee, Mariappa.
Booked: Spring, Stewart, Chambers.
Goals: King 46, Young 67, Spring 85.
Att: 22,880
Ref: M Jones (W Yorkshire).