The veteran striker, on his second appearance for Palace and back on his old stamping ground almost 16 years after he left, climbed off the bench to hit a second-half equaliser as the Eagles came from two down to snatch a draw.
It was a point that looked unlikely at half-time following a first half in which Watford blew their promotion rivals away with an early two-goal salvo from Almen Abdi and Nathaniel Chalobah.
But Palace, who also kicked off knowing a win would lift them back into the automatic promotion spots, pulled one back through Peter Ramage before 39-year-old substitute Phillips completed their comeback.
Gianfranco Zola's side were looking to break into the top two for the first time this season and looked every inch a team in form as they tore into Palace from the first whistle.
Goalkeeper Julian Speroni had already denied Abdi with a sprawling save but could do nothing to prevent the Swiss midfielder firing the Hornets ahead in the sixth minute.
Right-back Jazz Richards fluffed a clearance straight to the feet of Abdi, who cut inside Kagisho Dikgacoi on the edge of the area before placing a low shot across Speroni and into the far corner
By the 14th minute Palace were two down after failing to clear their lines from a corner and allowing former Eagle Fitz Hall to chip the ball back into the area.
Marco Cassetti's attempted volley towards goal flew straight into the turf and bounced up kindly for teenage Chelsea loanee Chalobah to nod into an empty net at the far post.
It should have been three by the 23rd minute when Abdi sent Cassetti clear down the right and his cross was met my Matej Vydra, but the Czech striker could not direct a free header on target.
That miss did not look like proving costly until well into the second half.
But Palace eventually pulled one back in the 66th minute when Ramage bundled the ball home after Damien Delaney's header was blocked on the line.
And four minutes later they were level through that man Phillips, who arrived at the far post to meet a low, inviting finish from Richards and, in typical fashion, struck it first time into the net.