Australia, were 65 for 2 at close on day three, chasing a Himalayan 413-run victory target. The hosts still need 348 runs with eight wickets in hand and six sessions to spare.
Should Australia win, it will be the biggest ever successful fourth-innings run chase seen in Australia, and the second biggest of all time.
The biggest ever winning fourth-innings total is the West Indies' 418/7 recorded against Australia at Antigua in 2003.
Sublime Laxman top scored with 79 while nightwatchman Irfan Pathan (46), Mahendra Dhoni (38) and tail-ender RP Singh (30) chipped in with handy scores to guide India to a healthy total
At one point of time India were in some sort of bother at 125/5, before VVS Laxman, who has a special liking for Aussie attack, played yet another gem of an innings to pull his side out of the crisis. He played a sheet anchor role to the perfection and was associated in two fruitful partnerships.
Firstly, he shared a crucial 75 runs stand with Dhoni for the seventh wicket stand and then he added 51 runs along with the tail ender RP. Laxman was at ease with pace and bounce of WACA strip. He dorve, pulled, flicked and cut fluently in his innings of top-class studded with eight hits to the fence.
Stuart Clark with 4-61 was the pick of the Aussie bowlers while Brett Lee and Symonds claimed 3 and 2 wickets respectively. However Shaun Tait was a let down for the hosts went wicketless before conceding 33 runs in his eight overs.
Earlier, resuming day three at 52/1, India top and middle order crumbled to Clark's accuracy and Lee's brutal pace. Clark sent the overnight batsman Virender Sehwag (43) packing early.
Lee then dismissed Dravid (3) for a regulation caught behind and followed it up with a prized scalp of Sachin Tendulkar (13) rapping the batting maestro with a toe crushing yorker in line of middle and leg stump. Moments later Johnson removed Sourav Ganguly for duck as the visitors crashed to 125/5.
However, the stubborn resistance from nightwatchman Irfan Pathan (46) and sublime Laxman helped India build on its lead as Aussie pace attack, which was dominant early, tired.
Pathan, who is having a good outing with both bat and ball, combined with Laxman to frustrate host's attack before edging Clark to Ricky Ponting stationed at first slip.
The next man in Dhoni, who is quiet in the ensuing series, after surviving early blues, played a typical innings. He unleashed two sixes and two fours in a 75-run partnership with Laxman as India looked to put the game out of reach of Australia.
But with tea in sight, Dhoni, who looked set for a big one, top-edged of a shoulder high ball off Andrew Symonds (36/2) and Adam Gilchrist dived full length to snare the magnificent catch.
And when Symonds claimed Anil Kumble for a duck four balls later, Australia was back in the match ... again.
But Clarke, who dropped Dravid in the first innings, grassed his second catch of the match to give Laxman a reprieve on 59- a costly one indeed.
Australia was forced to pay for the mistake as Laxman and Singh combined for a streaky 51-run ninth-wicket stand before Clark and Lee cleaned up the pair to end the innings.
The host's run chase started on a poor note when Pathan's peach of an away nipping delivery induced Rogers to edge for a simplest of caught-behind catches.
Left-arm Baroda seamer struck once again just minutes away from close of day's play when Jaques' drove a full length ball just nipping away late and is caught at slips by Jaffer.