Peyton Manning, Colts quarterback and Most Valuable Player in Super Bowl 41, was one of five Indianapolis players selected for the Pro Bowl, and completed 5 passes from 12 attempts for 67 yards.
However it was Palmer's day as he was selected for the Pro Bowl for the first time last season, but missed the match after suffering a serious knee injury in the play-offs, only to come back this year and be named Player of the Game after completing 8 of 17 passes.
Palmer, 27, connected with Colts' wide receiver Reggie Wayne for a 72-yard touchdown before hitting Bengals teammate Chad Johnson for a 42-yard score with 12:53 remaining to give the AFC a 28-14 lead.
But the NFC side hit back with St Louis Rams running back Steven Jackson scoring on a four-yard run before Dallas Cowboys quarterback Tony Romo found Arizona Cardinals' wide receiver Anquan Boldin for a 47-yard TD with 1:48 left.
Romo's pass to Steve Smith of the Carolina Panthers on the two-point conversion tied the game at 28-all, after a previous two-point conversion attempt had failed after the Jackson touchdown.
AFC domination continues
Palmer responded by controlling the match-winning drive, but was helped by a 39-yard pass interference penalty on strong safety Adrian Wilson of the Cardinals, moving the ball to the AFC two yard line.
Kaeding then came on and made no mistake with his field goal, giving the AFC its ninth win in the last 13 Pro Bowl meetings against the NFC.
Earlier, LaDainian Tomlinson, Chargers running back and NFL regular season MVP after setting a single-season record of 31 touchdowns during the regular season, scored on a three-yard run in the third quarter to give the AFC a 21-14 lead.
Vince Young of the Tennessee Titans became the first rookie quarterback to play in the Pro Bowl, throwing ten passes for four completions, 71 yards and an interception while adding 15 rushing yards on three attempts.
Romo completed 11 of 19 passes for 156 yards and a touchdown with an interception, while the season ended badly for New Orleans Saints quarterback Drew Brees who suffered a dislocated left elbow in the first quarter.