Australia had gotten off to a poor start as goals from Alexis Sanchez and Jorge Valdivia saw them trail 2-0 after 14 minutes, but Tim Cahill scored at his third World Cup to get his side back into the game, before they went close several times in the second half, before Jean Beausejour eventually made things secure for Chile in injury-time.
The South Americans were looking like crushing their opponents and it seeemed only a matter of how many they would get.
Yet as much as Chile were dominant, thedecision to field two diminutive full-backs as a centre-back pairing against a team whose strategy mostly revolves around crossing to a striker who is strong in the air came back to haunt them. Cahill easily climbed above Gary Medel to meet Franjic's cross and fired in a brilliant header to give Australia a way back into the game.
In the second half, Chile would have been expected to resume their onslaught, but it was Australia who turned on the style.
Howard once again had the ball in the net, but was rightly called offside, as the underdogs continued to threaten. Chances became fewer and fewer between in the game, but Chile were incredibly forced back ever deeper as Australia grew into the game, forcing them into their own area for long spells.
Cahill simply wasn't being dealt with by Chile, and he perhaps ought to have had a second, but landed another header onto the roof of the net, as Australia's opponents became noticably nervous and jittery, with Matthew Leckie also missing a decent aerial chance.
In the end, however, Chile were able to hang on for the three points, and wrapped up their victory in injury-time when Jean Beausejour took advantage of a desperate Australia to break and unleash a long-range shot which got past Ryan and into the net.
Although Australia will be third in the group, ahead of the current World Champions, Spain. Chile will need to reassess themselves after having their weaknesses so widely exploited in the second half, and will just be glad to get out of the game alive.
Australia, meanwhile, have much to be proud about their performance, but if they were going to get out of the group, this was their opportunity.
Chile: Bravo, Isla, Medel, Jara, Mena, Diaz, Vidal (Gutierrez 60'), Aranguiz, Valdivia (Beausejour 68'), Sanchez, Vargas (Pinilla 84').
Goals: Sanchez 12', Valdivia 14', Beausejour 90+2'
Australia: Ryan, Davidson, Spiranovic, Wilkinson, Franjic (McGowan 49'), Miligan, Jedinak, Leckie, Bresciano (Troisi 81'), Oar (Halloran 69'), Cahill.
Goals: Cahill 35'