The master leg-spinner, playing in his penultimate Test match ahead of his farewell Sydney Test next week after announcing his retirement, captured 5-39 off 17.2 overs - his 37th five-wicket Test haul - as England succumbed for 159 after winning the toss here on Tuesday.
Australia reached stumps at 48 for two off 11 overs with Matthew Hayden 17 not out and Ricky Ponting yet to score after Justin Langer (27) and nightwatchman Brett Lee (0) were both caught behind off successive Andrew Flintoff deliveries.
It was a case of the bigger the stage the bigger the performance as Warne bowled Andrew Strauss for his 700th wicket just before tea and went on to claim four more scalps to take his career tally to 704 in his 144th Test.
Warne produced his Boxing Day theatrics before an Ashes record crowd of 89,155, just shy of the world record single day's Test attendance of 90,800 for the second day of the fifth Test against the West Indies at the MCG in 1961.
England would have been dismissed even more cheaply if not for some wretched Australian fielding, with wicketkeeper Adam Gilchrist making a horrible hash of an attempted stumping when Kevin Pietersen was on his way to scoring 21.
Paul Collingwood was dropped by Gilchrist on two before making 28. Topscorer Andrew Strauss was put down by Matthew Hayden in the gully off Warne on 41 - a straightforward chance - and went on to score 50.
But it was Warne's day on his home MCG pitch, receiving a sustained standing ovation when he was introduced into the bowling attack in the 41st over late in the middle session.
Thirty minutes later the stadium was in uproar when Warne produced a signature leg-break to knock over Strauss's middle stump and claim his 700th scalp.
Warne, who has been acclaimed as one of the all-time cricketing greats, having revolutionised the art of wrist-spin bowling, thought he had the prized scalp of Hampshire county team mate Pietersen when he was only four.
But Gilchrist mangled a stumping chance with England's big batting gun hopelessly stranded metres down the pitch.
Flintoff continued his wretched batting series when he was out for 13, snapped up by Warne at first slip to give Stuart Clark his second wicket of the innings. Flintoff has scored 133 runs in seven innings in the series.
Chris Read, preferred to Geraint Jones as wicketkeeper for the first time in the series, was all at sea against Warne before lashing out in frustration to be caught by Ponting at short extra cover for three.
Sajid Mahmood gave Glenn McGrath his first wicket of the innings, caught behind for a duck, while Steve Harmison (7), Pietersen (21) and Monty Panesar (4) were dismissed by Warne to end the England innings. Warne has now taken 19 wickets in the series.
Opener Alastair Cook, who scored an obdurate six-and-a-half-hour century in the third Perth Test, was caught by Gilchrist off Lee for 11 in the morning session and Ian Bell was trapped leg before wicket by Stuart Clark for seven.
Australia, stung by last year's series loss in England, regained the Ashes after winning the opening three Test matches and are trying to emulate Warwick Armstrong team's 5-0 Ashes sweep of 85 years ago.
England 159 all out ( Strauss 50, Collingwood 28, Pietersen 21; Warne 5 for 39, Clark 2 for 27, Brett Lee 2 for 36) Vs Australia 48 for 2 ( Langer 27, Hayden 17 n o; Flintoff 2 for 20)