The visitors were ahead early on when Jonathan Forte capitalised on a mistake by Danny Butterfield to round Julian Speroni and slot home.
Palace had looked like getting back into the game but, with 58 minutes gone, Paul Hayes doubled Scunthorpe's lead before Forte set up Sam Togwell to make the game safe eight minutes later.
Forte was the thorn in Palace's side again as he played the ball to Michael O'Connor, who finished well to settle the match. To compound Palace's misery, Freddie Sears saw a late penalty saved by Joe Murphy.
Scunthorpe got off to a dream start when, with only four minutes gone, Butterfield's mistake let in Forte and he rounded Palace keeper Speroni before coolly finishing from the angle.
The early goal rocked Palace but they gradually began to get into the game and Butterfield's free-kick from the left found Clint Hill but he headed over from 12 yards.
Desperate to atone for his earlier error, Butterfield fired wide from the edge of the box before Alassane N'Diaye sent an effort over the bar.
Palace continued to pour forward in search of an equaliser and seven minutes before half-time Shaun Derry let fly from 20 yards but his effort was parried away by Scunthorpe goalkeeper Murphy.
With half-time approaching, Neil Danns and Victor Moses both had efforts saved by Murphy as the home side piled on the pressure.
The second half began as the first had finished, with Palace on the attack, and Darren Ambrose looked dangerous from dead-ball situations.
However, just as it looked like Palace might get back into the game Scunthorpe grabbed a crucial second when Rob Jones flicked the ball on for Hayes, who nipped in at the near post to score.
Palace manager Neil Warnock responded by bringing on Sears and Ryan Smith for Ambrose and Moses but the changes had little effect as the visitors made the game safe in the 66th minute.
This time Forte turned provider as he teed up Togwell, who drilled the ball home from 12 yards.
The home side were in complete disarray and things went from bad to worse two minutes later when Forte found space down the right and pulled the ball across for O'Connor, who produced a cool finish.
The Selhurst Park crowd were stunned by what they were seeing and the Eagles tried to get back into the game with Sean Scannell having a close-range shot blocked.
There was a glimmer of hope with 10 minutes left when Togwell handled in the box but Sears saw his penalty saved by Murphy.