New Zealand had started the day with hopes high that a first test victory on Australian soil since 1985 might be within their grasp but superb bowling sent them crashing from 139 for three overnight to 226 all out at lunch.
Australia openers David Warner (47) and Phil Hughes (20) will resume on Monday having survived a few dicey moments on a wicket still offering plenty for the bowlers.
Lefthander Hughes survived a scare before he managed to get a run on the board when what looked like a legitimate appeal for a catch off his glove from the bowling of Chris Martin was turned down.
Playing for his place in the side after three failures in the series so far, Hughes recovered his composure but his batting lacked the confidence of Warner at the other end.
In just his second test, Warner showed more and more of the attacking flair that has made him such an effective limited overs player to close within three runs of his maiden half century off 50 balls.
Australia won the first of the two-test series by nine wickets in Brisbane last week but had been staring a first ever defeat at the Bellerive Oval in the face after crashing to 136 all out in their first innings on Saturday.
Paceman Peter Siddle (3-66) and James Pattinson (3-54), however, helped restrict the Blacks Caps to just 87 runs at the cost of seven wickets in the extended morning session with spinner Nathan Lyon (3-25) mopping up the tail.
Siddle struck with the third ball of the day to remove Kane Williamson for 34 and break up the New Zealander's 66-run partnership with his skipper Ross Taylor.
Ricky Ponting, wearing a black armband in memory of his grandmother who died overnight, took the catch at slip after Williamson got a thick edge to the ball.
Taylor managed to accrue his half century before departing for 56 when he was finally tempted to attack a wide delivery from Pattinson and Michael Clarke took the catch in the cordon.
Pattinson's next over saw the departure of Dean Brownlie caught behind off his gloves for 21 and when Siddle trapped Reece Young (nine) lbw, New Zealand were floundering at 190 for seven.
Tim Southee, celebrating his 23rd birthday, slammed Lyon for a six and a four on consecutive balls before pushing his luck too far and holing out to Mike Hussey at long on for 13.
Two balls later, Lyon bowled Doug Bracewell for four and the 24-year-old again combined with Hussey to end Trent Boult's resistance after the debutant had hit an impressive 21 off 13 balls.
