Ireland international Walters, who headed two own goals and missed a penalty in his side's 4-0 home league thrashing on Saturday, went from zero to hero as his side beat second tier Palace in a replay to set up a fourth round clash with Manchester City - a repeat of the 2011 final.
Premier League Sunderland suffered an upset as they lost 2-0 at home to Championship side Bolton Wanderers on a busy night of third round replays during which third-tier Brentford set up a dream tie against holders and West London neighbours Chelsea by beating Southend United.
Harry Redknapp's Queens Park Rangers, still propping up the Premier League, enjoyed a morale-boosting 1-0 victory at West Bromwich Albion thanks to a last-gasp header from Jay Bothroyd.
Walters was left red-faced after his calamitous display against Chelsea but recovered to inspire Stoke after Palace had dragged the tie into extra time with Glen Murray's penalty.
First he headed in a Matthew Etherington cross to make it 2-1 before shooting home to deflate Palace. Cameron Jerome completed Stoke's victory.
Premier League strugglers Wigan Athletic fielded a shadow squad at third-tier Bournemouth but avoided a shock as Mauro Boselli's goal sealed a 1-0 win on the south coast.
