The Australians looked set to comfortably score more than 300 when Matthew Hayden and Ricky Ponting put on a century second-wicket partnership after the latter won the toss and elected to bat on Friday.
However, Collingwood's fielding, combined with some fine bowling from stand-in captain Andrew Flintoff and spinner Monty Panesar, ensured their team's unlikely late-tour resurgence continued as the last four Australian wickets fell for just four runs.
At 170-1 in the 31st over on a perfect batting wicket, with Ponting and Hayden both in top form and having added 138, Australia looked to have laid the perfect foundation for a late onslaught.
However, it never came and Collingwood's superb diving catch to remove Ponting was the catalyst for an unexpected collapse by the home side.
Ponting was in sparkling form, but on 75 lofted a cut shot off Panesar, with Collingwood diving to his left to grasp the tough chance in one hand.
The skipper had faced just 75 balls and hit seven boundaries in effortless fashion, but his century went abegging in what proved a turning point.
Hayden, who made 82 from 102 balls and showed his best form of the tri-series, fell soon after to part-time spinner James Dalrymple, caught on the long-on boundary by Sajid Mahood.
Australia were 180 for three when the innings unravelled spectacularly, the home side losing their last six wickets for 23 runs in just 37 balls.
Michael Clarke temporarily steadied the Australians in making 33 before Collingwood struck again, running the right-hander out by centimetres with a direct hit from mid-off.
And the England allrounder wasn't finished, running out Brett Lee for a duck with another sublime direct hit, this time from gully.
Collingwood's inspired fielding here comes after he turned around an extended run of poor form with a century and man-of-the-match honours in the final qualifying game against New Zealand.
Mike Hussey is normally the man to steady the Australians in a crisis, but he was one of Flintoff's three victims, caught behind by Nixon for 17.
The lion-hearted Flintoff hasn't often looked comfortable with the captaincy role, but bowled impressively to claim the wickets of Hussey, Brad Hogg and Glenn McGrath in finishing with 3-41 from 9.3 overs.
Panesar (2-44) chimed in with the crucial wickets of Ponting and Brad Hodge, although the latter was unlucky to be adjudged lbw.
Panesar did botch what should have been a simple run-out of Hayden when the left-hander was 75, while Mahmood dropped a sitter off Hussey. But for once the Australians didn't punish the England errors.