The Indians had been grafting for runs in their chase after an improbable 499 runs for victory but the momentum swung Australia's way with the wickets of Tendulkar and Laxman in the middle session.
India limped to tea in fierce heat at the Melbourne Cricket Ground at 134 for five with Sourav Ganguly fighting hard on 36 and wicketkeeper Mahendra Dhoni on one.
The Australians, chasing their 15th consecutive Test victory, drove home their advantage with another cheap dismissal of No.6 Yuvraj Singh for five just before tea.
Much depended on Tendulkar and Laxman to stick it out against relentless Australian probing, but they could not overcome the odds.
Only three teams in Test cricket history have scored 400 or more in the fourth innings for victory.
Brett Lee set up Tendulkar with a short-pitched ball and followed up with one outside off-stump which "The Little Master" chased after for his favourite square drive and edged to Adam Gilchrist.
Tendulkar was generously applauded from the ground by the small crowd in his fourth and farewell Test at the MCG where he averaged 43 in his eight innings at the home of Australian cricket.
The champion batsman, who lies second (11,366) only to West Indian Brian Lara (11,953) for most Test runs, scored 15 and lasted only for 31 minutes and faced 21 balls.
Laxman battled for almost three hours and 112 balls before he fell driving Stuart Clark to Michael Clarke in the covers for 42 in the 54th over.
Yuvraj, who forced the switch of Rahul Dravid to open the innings to fit him into the Test lineup, failed for a second time, lasting just 16 minutes before he was tricked by wrist-spinner Brad Hogg's flipper and was leg before wicket.
Andrew Symonds grabbed Dravid's wicket before lunch, trapping him lbw for 16 with one that kept low.
Dravid, who scored five off 66 balls in the first innings, again stonewalled the Australian bowlers facing 114 balls in 150 minutes with two boundaries.
But Symonds finally got one through his defences hitting his back pad on the low, slow drop-in MCG pitch.
Gilchrist overtook Ian Healy as the Australian wicketkeeper with the most dismissals with his catch of opener Wasim Jaffer for 15 off Brett Lee.
The regulation catch was Gilchrist's 396th dismissal in his 93rd Test passing his predecessor Healy's 395 from 119 Tests.
South Africa's Mark Boucher, currently playing in the first Test against the West Indies in Port Elizabeth, holds the wicketkeeping record with 406 dismissals.
Jaffer had been caught by Gilchrist off a no-ball off the first delivery of Lee's seventh over, but was on his way two balls later to the same mode of dismissal 33 minutes into the fourth day's play.