Palace's only previous final appearance came against United in 1990, after current manager Alan Pardew's extra-time goalscoring heroics at the semi-final stage, but the Eagles were runners-up after a replay.
They made the showpiece fixture in calmer fashion this time around, Yannick Bolasie putting them ahead early in a first half that swiftly degenerated into a tense affair.
Troy Deeney, Watford's two-goal match-winner at Selhurst Park in the English Premier League this season, responded 10 minutes after the interval, but Connor Wickham nodded Palace back ahead before Quique Sanchez Flores' side could even think about building on their goal.
A dogged Palace display leaves Watford's season in stand-by, with Flores unable to spark a performance, despite reportedly rocky job security, in what becomes their final meaningful fixture.
And though Palace's league campaign fizzled into a somewhat fraught battle for survival, their season could yet end in glory at the national stadium against the Red Devils in May.
Watford's Cup goalkeeper Costel Pantilimon had already flapped under one corner when Yohan Cabaye's delivery was flicked on by Damien Delaney and the totally unmarked Bolasie stooped to snatch an early lead.
Palace's fans were sent into high-decibel raptures, and their team immediately camped on the counter-attack, with Bolasie and Wilfried Zaha's pace a simmering threat.
Watford struggled to muster much of a response. Joel Ward almost turning into his own net was their sole chance before Flores was forced into a midfield change when Etienne Capoue suffered a knee injury and was replaced by Mario Suarez.
Though the atmosphere inside Wembley remained at fever pitch, there was little to shout about as Watford failed to turn possession into penetration and Palace's final ball was lacking when they made tracks in wide areas.
The Hornets came out for the second half with added cutting edge, and they swiftly got back on level terms.
Jose Manuel Jurado swung in a corner from the same flank that Palace had scored from and Deeney got ahead of Scott Dann to glance past a motionless Wayne Hennessey.
However, parity was maintained for less than six minutes as Wickham outmuscled Nathan Ake under a looping Pape Souare cross and steered his header into the corner.
Watford shook off their possession-focused shackles to charge forward in the final 10 minutes, but Odion Ighalo wastefully blazed over from inside the box and Hennessey was equal to Jurado's 25-yard snapshot.
However, after Adlene Guedioura scuffed wide it was Palace's raucous fans who were celebrating, as they had been in 2013's Championship play-off final between the sides, with Pardew plotting his second Cup final as a manager after being undone by Steven Gerrard's brilliance a decade ago.
