Hovering precariously above the drop zone coming into the game, the victory gives Tony Pulis' side a massive lift in their bid to avoid relegation straight back to the Championship as they now sit 16th, five points clear of the bottom three.
After Chelsea's resounding 6-0 win over Arsenal last week, and Palace's last-minute defeat at Newcastle United, many expected a routine three points for Jose Mourinho's table-toppers, but the hosts upset the form book by recording their first league win over their London neighbours since 1990.
Pulis' team came up against a Chelsea outfit that had been rampant in thumping Arsenal, but there was no sign of that ruthless attacking vigour at Selhurst Park as the home side nullified their opponents.
It was a huge setback for Mourinho's men, who missed out on the chance to go four points clear at the top with fellow title contenders Liverpool and Manchester City still to play this weekend.
After a quiet opening to the game, Andre Schurrle squandered the first genuine opening in the 18th minute, prodding the ball wide from four yards after stretching to reach Cesar Azpilicueta's low cross at the back post.
Terry scored at the wrong end shortly after the interval, heading Ward's cross beyond Cech at the near post under pressure from Ledley.
Chelsea almost levelled immediately, Julian Speroni diving full length to his left to keep out Eden Hazard's curling effort from the edge of the area.
As the game became more open, Puncheon's left-foot shot went narrowly wide of the post in the 62nd minute, before Terry nodded Oscar's free-kick just over the crossbar 60 seconds later.
