Runaway leaders Chelsea had not conceded twice since losing 2-0 at Tottenham at January 4, but were breached twice in three minutes after taking a fifth-minute lead through Cesc Fabregas.
Wilfried Zaha and Christian Benteke gave the Eagles a 2-1 lead after 11 minutes and a brilliant team performance from Sam Allardyce's men earned a fourth straight win to improve their survival hopes.
Zaha and Benteke - known to be admired by Chelsea boss Antonio Conte - excelled, as did goalkeeper Wayne Hennessey as Chelsea's 13-game winning home run ended.
Simon Johnson was at Stamford Bridge to assess the key Chelsea talking points...
The best and worst of Cesc Fabregas
Fabregas' reduced role at Chelsea this season has been the subject of great debate and today we saw evidence for the defence and the prosecution.
For the many Chelsea fans who think he should start more games, his goal in the fifth minute demonstrated his attacking qualities.
It wasn't just his fine finish from close range, but also the long pass to Eden Hazard that started the move in the first place.
As always he was neat and tidy in possession, but with a Crystal Palace side playing with energy and purpose, he was also bypassed too easily at times.
It meant the Blues looked far more vulnerable to the counter attack than usual, although it was not all the Spaniard's fault.
Antonio Conte left Chelsea exposed by picking Pedro as a wing back
In the absence of the injured Victor Moses, Conte decided to go for the attacking option and switch Pedro there in the Nigerian's place.
He ignored natural defenders like Nathan Ake and Kurt Zouma in the hope Pedro would provide more of an offensive option.
Chelsea certainly were a constant threat in the final third as Pedro powered forward time and time again.
But his lack of experience on the defensive side shone through as the visitors exploited the gaps he left behind him time and time again.
Chelsea fans are starting to lose patience with Diego Costa
The last time these two teams met in December, Costa was the darling of the Chelsea crowd and he scored the winning goal.
That was customary in the first half of the season, but the Spain international has lost his mojo since then.
Whether it was the big money bid from China in January, injury or simple fatigue, Costa has looked a yard off the pace for a few months now.
There were a number of opportunities for him to score this afternoon, but he was either too hesitant or too wayward to take advantage.
The sight of him being bullied off the ball by beleaguered defender James Tomkins in the first half stood out for all the wrong reasons.
It was noticeable that as Costa increasingly missed an opening or failed to get on the end of a cross, the fans moaned in his direction.
Eden Hazard needs to do more to become the first £100m player
All the talk over the past week has been about Real Madrid being prepared to make the Belgium international their new world record signing.
It is understandable why Hazard could break the £100m barrier. At 26 he is reaching his peak and can be a delight to watch, as he was in the opening stages this afternoon.
Palace players were left bemused at first, they didn't know which way he was going to dribble.
But as Chelsea struggled to recover from the shock of falling behind, Hazard's influence on proceedings waned.
This is the kind of occasion where if he was at the Bernabeu, Hazard would be expected to deliver.
Chelsea have no intention of selling him, but this may sow a few seeds of doubt in Madrid's minds too.
Conte needs to introduce some more crossing drills in training
Chelsea will look back on a videotape of this game and cringe at a number of times they failed to put a decent cross into the box.
Time and time again, men in blue found themselves with plenty of space out wide and failed to pick out a team-mate.
Whether it was Marcus Alonso, Pedro, Willian or even Hazard, too many balls were hit in hope rather than expectation and were easily cleared by Palace defenders.
Granted, there was the odd occasion where a ball flashed across the six-yard box without a Chelsea player in sight, which was also criminal.
But overall, Conte will be disappointed that his players didn't show more quality or composure in possession and will want an improvement ahead of the Manchester City game on Wednesday