Forced to follow on after being 340 runs behind on the first innings, Sri Lankan skipper Mahela Jayawardene (8*) and Michael Vandort (15*) have an uphill task at hand in their first Test against Australia in Brisbane.
Andrew Symonds had opener Marvan Atapattu--who top scored with 51 in the first innings--caught behind for 16 and Lee picked up the dangerous Sanath Jayasuriya caught at second slip (39) pile on the misery for the tourists late on a one-sided third day's play at the Gabba.
Earlier, Lee led Australia's pacemen as they skittled the Sri Lankan batting line-up for 211 in 81.5 overs in their first innings.
Lee took the amazing figures of four for 26 from 17.5 overs in Sri Lanka's first-innings collapse.
Queensland left-arm quick Mitchell Johnson took two for 49 in his debut performance while Stuart Clark was his usual reliable self with two for 46.
Leg-spinner Stuart MacGill took one for 79 to move to 199 test wickets.
In reply to the home side's 551-4 declared, Sri Lanka lost three wickets in the morning session to be 124-5 at lunch.
Johnson, playing on his home ground for his Test debut, was surrounded by teammates after getting his first career scalp as Thilan Samaraweera (13) edged through to wicketkeeper Adam Gilchrist at 65-4. Clark had removed captain Mahela Jayawardene (14) 20 runs earlier.
Chamara Silva (40) and Atapattu shared a 54-run stand but Silva was caught at third man off the bowling of Clark shortly before lunch.
Opener Atapattu top-edged a pull shot off the bowling of Johnson with Phil Jaques taking the catch at square leg in Australia's only breakthrough in the middle session.
But Sri Lanka's resistance crumbled after tea with Andrew Symonds getting through the defences of Farveez Maharoof (21) and MacGill bowling left-hander Chaminda Vaas through bat and pad for eight.
Lee wrapped up the innings with wickets in consecutive overs, trapping wicketkeeper Prasanna Jayawardene lbw for 37 before Dilhara Fernando was caught at mid-on for seven.