Melbourne: The tall fast bowler overcame some problems with his run-up and early punishment from opener Matthew Hayden to wreak havoc on the Australian top order and claim four wickets.
After winning the toss and electing to bat, the Australians made just 159 in 43.1 overs, with captain Ricky Ponting's form slump worsening when he fell cheaply to Sharma.
Just a day after Virender Sehwag warned India were after Australia's title as the world's best team, their bowlers backed up his incendiary words and Sharma led the assault with 4-38 from 9.1 overs.
He should have had five wickets, with wicketkeeper Mahendra Singh Dhoni grassing a chance from tailender Nathan Bracken late in the Australian innings, and was well supported by Shanth Sreesanth, with 3-31, and Irfan Pathan (2-26).
The 19-year-old Sharma's second over was a nightmare, conceding 18 runs as Hayden belted four boundaries, he bowled two no-balls and lost his run-up.
But in a sign of his impressive composure under pressure, he bounced back to have a leaden-footed Hayden caught behind from the second ball of his next over.
Hayden (25 from 21 balls) didn't move his feet at all as he attempted a lusty cover drive and only got a thick edge through to Dhoni.
Sharma then produced a superb rising delivery to have Ponting caught at first slip by Sachin Tendulkar for just nine.
Ponting, who also struggled in the Test series against India apart from grafting out a century on a flat wicket in Adelaide, has just 18 runs in three innings in the tri-series at 6.00.
Sharma's third victim was Andrew Symonds, the dangerous right-hander well caught for 14 off the outside edge by the diving Dhoni as he attempted to defend another rising delivery.
Australia had lost 4-38 and were in all sorts of trouble at 75 for five.
A brilliant piece of work by Dhoni then removed the recalled Brad Haddin, stumped down the leg side off a Harbhajan Singh wide for five, from 31 balls, as India turned the screws and Australia slumped to 92 for six.
Only Mike Hussey held the Australian innings together with an unbeaten 65, his 53-run stand with Brett Lee for the seventh wicket adding much-needed respectability to the total.
Sharma wrapped up the innings when Dhoni completed his fifth dismissal of the innings to remove Stuart Clark.
The home side had got off to a disastrous start, with Adam Gilchrist failing to trouble the scorers and desperately unlucky to be given out LBW to Shanth Sreesanth from the third ball of the innings.
Gilchrist got a hefty inside edge to the delivery but umpire Rudi Koertzen raised the finger.