The 26-year-old has struggled to find a level of consistency throughout his career and with the Eagles needing to raise funds for their summer activity, the winger has reluctantly been placed on the chopping block.
The Times have reported that Roy Hodgson faces an uphill battle to secure a number of targets throughout the summer window as he has been told there is limited money for new additions, unless it is funded through player sales.
Palace's woes are further compounded by the need to make serious cuts to players salaries next season as they look for funds to pay for the redevelopment of the Main Stand at Selhurst Park - their wage bill which amounted to £112m in season 2016/17 is the ninth highest in the Premier League.
The Magpies had expressed serious interest in taking the winger off their hands, but have yet to meet the £30m valuation due to financial restrictions of their own amidst ongoing ownership struggles.
Rafa Benitez is desperate for attacking additions this summer, but may be forced to look elsewhere should the Eagles refuse to lower their valuation of Townsend.
The 26-year-old's reunion with the St James' Park faithful would require the club to smash their transfer record, which currently stands at £16m when Newcastle secured Michael Owen from Real Madrid.
Townsend did impress during his time with the Magpies, having scored four goals and provided two assists in just 13 appearances.
The Eagles meanwhile are expected to see out of contract stars Yohan Cabaye and Joel Ward sign new contracts at the club on reduced terms, whilst another loan spell for Ruben Loftus-Cheek is anticipated.