The victory was City's fifth in succession in the league and lifted them above champions Liverpool. Also with a game in hand on leaders Manchester United, their title credentials are growing.
It was also another fine night for Stones, whose renaissance has been one of the stories of the campaign so far.
The defender's future had been uncertain in the summer but, after adding his first Premier League goals for City on Sunday to his recent impressive body of work, his position seems almost untouchable.
City were helped, however, by how ineffective Palace were. The Eagles had frustrated City on their last two visits to the Etihad Stadium but this time, without Zaha after he suffered a knock against Arsenal in midweek, they lacked any sort of spark.
They did make a solid start but, as City controlled possession and patiently carved out chances, damage limitation always seemed the extent of their ambition.
Another of their star performers this term, Eberechi Eze, was involved but he had a quiet game. He did try to catch Ederson out of his goal with an effort from 35 yards early on but it sailed harmlessly over the bar.
After taking time to warm up, City began to threaten midway through the first half as Kevin De Bruyne had a curling effort deflected wide. Sterling, Gundogan and De Bruyne then all had powerful efforts blocked in quick succession following the resulting corner.
The opening goal came after some De Bruyne brilliance with 26 minutes gone. The Belgian brilliantly controlled a crossfield pass from Sterling on the left and instinctively curled a cross into the area with the outside of his right boot.
Stones read it perfectly and rose to head home his first of the night. He temporarily forgot the new protocols regarding goal celebrations as he ran off towards the corner flag and accepted a hug from Ruben Dias and Gabriel Jesus. De Bruyne showed more restraint as he fist-bumped Kyle Walker in recognition of what was his 100th assist for City.
Jesus threatened soon after from a Gundogan flick-on but his header was easily saved by Vicente Guaita.
Sterling lost his footing after a good run into the area and, on another occasion, the England forward overhit a cross for Bernardo Silva.
Still, it seemed a second goal would come and it arrived, and in style, 11 minutes into second half.
It was all Gundogan's own work as he won the ball from Andros Townsend and then curled a shot into the top corner from the edge of the area.
This time there was a comic element to the celebrations as Gundogan accepted congratulatory hugs from his team-mates only for Fernandinho to come along and remind of the need to keep their distance. After that, fist-bumps seemed to suffice.
De Bruyne fired another shot narrowly wide before City got their third after 68 minutes.
Guaita did well to keep out a firm header from Dias but the ball rebounded to Stones, who lashed it back into the net almost instinctively.
Sterling, making up for the frustration of a missed penalty in midweek, wrapped up a fine night's work for City when he curled home a free-kick from the edge of the area three minutes from time.