Strikers Dennis Bergkamp, Jose Antonio Reyes and Thierry Henry scored three goals within eight minutes just before halftime and Patrick Vieira and Henry completed the rout after the interval.
The champions moved to 57 points from 27 matches, 11 adrift of leaders Chelsea. Palace remained 17th, two points above the relegation zone.
"The title is out of our hands now but we want to finish as close as possible (to Chelsea)," Arsenal manager Arsene Wenger told Sky Sports.
"We showed the way we want to play the game tonight -- with happiness in the team. With the number of good players and young players here, the future is bright."
The visitors made a bright start at Highbury and Arsenal goalkeeper Jens Lehmann nearly conceded a comical own goal when he allowed a back pass from Gael Clichy to slide under his foot.
The German also reacted smartly to keep out a snap shot from Palace striker Dougie Freedman but Arsenal gradually took control of the match.
CLINICAL FINISH
Bergkamp produced a clinical finish at the near post on 32 minutes, Reyes rifled in a low shot from the edge of the area and Henry, playing in his 200th Premier League match, whipped in the third after cutting in from out wide.
The Palace defence was ripped apart once again on 54 minutes, Henry's clinical pass releasing Vieira who rounded goalkeeper Gabor Kiraly and prodded the ball into an empty net.
Palace pulled a goal back on 63 minutes when Andy Johnson was fouled by Vieira in the penalty area and the England striker smashed the resulting spot-kick into the roof of the net.
Arsenal's fifth goal came 13 minutes from time when Bergkamp teed up Henry and the French international bamboozled the Palace defence before crashing an unstoppable shot past Kiraly from the edge of the area.
"We had a difficult start and that was maybe the turning point of the game," added Wenger.
"We could have been shocked in the first 15 minutes but once we came back into it and found our fluency, we were always dangerous."
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