The 33-year-old batting craftsman from Hyderabad fully stretched Ricky Ponting's team at the SCG with classic strokeplay for his 12th hundred in his 88th Test match.
Laxman relished his return to the venerable ground, producing his trademark sumptuous drives, scoring 109 off 142 balls with 18 fours to breathe new hope into the tourists after Australia's formidable first innings total of 463.
Before Laxman's arrival shortly after lunch on the second day of the second Test, Andrew Symonds had dominated with his unconquered 162 in Australia's innings.
Scorecard | Photo gallery
But the Indian right-hander joined Rahul Dravid at the crease to restore morale after the tourists' 337-run drubbing in the first Test in Melbourne.
Laxman and Dravid fell late in the day, six minutes apart. Dravid was out for a battling 53, caught at first slip by Matthew Hayden off Mitchell Johnson, and Laxman was taken by Mike Hussey off leg-spinner Brad Hogg.
At stumps on day two, India were 216 for three and trailing by 247 runs with Sachin Tendulkar on nine and Sourav Ganguly not out 21.
"Getting a hundred on this ground previously definitely gives you a boost because you've done well and it's familiar conditions. It gives you a lot of confidence," Laxman said.
"I was disappointed that we lost two quick wickets because I really wanted to be not out and carry on tomorrow.
"It's very important how we start off tomorrow morning. If they can build a big partnership we can have a big first innings total and put pressure on the Aussies.... I'm sure Sachin Tendulkar is going to get a double (century) tomorrow."
Laxman and Dravid, who have proved Australia's nemeses with two huge partnerships in the past, amassed 175 runs for the second wicket.
They are renowned for their match-turning 376-run partnership in the second innings of the "Miracle of Calcutta" Test triumph, which ended Australia's march of 16 consecutive wins in 2001.
Australia paid dearly Thursday for Laxman having a life on 77 when he was put down by Adam Gilchrist, fumbling a right glove chance off Brett Lee.
"They were very crucial wickets right at the end," Lee said. "Especially, Laxman because he played a fantastic innings today.
"We hung in there. That's the Australian way. We always think we've a chance of taking wickets, especially late in the day."
Laxman careered to his half-century off 43 balls and in one Johnson over plundered 18 runs with four boundaries and a two.
In contrast, Dravid crawled along as he did in the Melbourne Test with his half-century coming off 158 balls in four hours.
Dravid was playfully barracked by the Australian crowd, cheering each time he played a non-scoring shot and on one occasion they gave him a huge ovation when he scored a single after being marooned on 18 for 41 balls. Two balls after reaching his half-century he was out.
Earlier, Symonds eclipsed his previous highest score of 156 set a year ago against England with his 344-minute epic that rescued the Australians on the opening day.
Symonds, helped by big partnerships with Hogg (173 runs) and Lee (114), added 329 runs for the last four wickets to frustrate the tourists.
The all-rounder blasted 18 fours and two sixes off 226 balls for his second century in his 17th Test match.
Lee claimed his fourth Test half-century with 59 and Johnson batted boldly for 28 to rub the salt into the Indian wounds.
The Australians' big innings came after being in strife at 134 for six midway through the first day's play.
Indian skipper Anil Kumble finished with 4-106 off 25.3 overs, with left-arm paceman RP Singh taking 4-124 off 26 overs.