The Dumfries-based side slip to sixth as a result of the defeat in what is proving to be a very tight division.
Airdrie responded well after their disappointing Boxing Day defeat at Falkirk and deservedly took the lead just after the half-hour.
Owen Coyle's close-range header proved to too good for Queens keeper Richard Barnard as it nestled in the back of the net.
As the visitors hit back Brian McLaughlin missed two chances to equalise and Airdrie were lucky to go into the half-time interval still ahead.
Queen of the South, who also lost their last game to Falkirk, 4-2 two weeks ago, were finally beaten 16 minutes from time when Alan Gow curled home Airdrie's second.
After the match a disappointed Queens boss Ian Scott said: "We had our chances but didn't take them.
"We played well for the first 15 minutes but then they came into the game, scored a goal and dominated to the interval.
"In the second half I honestly felt we were the better side but they got the all important second goal.
"In the last five minutes we had four great chances - three of them one-on-one with the keeper - but we couldn't take any of them. So as I said before if you don't take your chances you don't win games."