Watson and Routledge came through the club's successful academy together to become regulars in the first team but parted when the winger joined Tottenham in 2005.
Routledge was tipped as the next big thing - just as Palace kids John Bostock, Sean Scannell, Lee Hills, Lewis Grabban and Victor Moses are now - but he has made only three starts for Spurs in the Premier League and is set to leave this month.
A number of Premier League clubs have been linked with the Palace youngsters but at least 17-year-olds Scannell and Hills have signed new deals to stay.
However, Bostock, who turned 16 on Tuesday, is still a target for Chelsea and has yet to sign his first professional contract.
But Watson is adamant that all the players are better off continuing their education at Palace.
He said: "Palace are the best learning academy for them. The manager here is not afraid to play them and if they stay for the next few years they will progress quicker.
"You can't beat playing every week. You only have to look at what happened with Wayne. I saw the other day that he'd only played five games in two and a half years for Tottenham."