The Saudis took a 2-1 lead in the Group D clash at the AAMI stadium with first-half efforts from midfielder Salem Aldawsari and striker Nassir Al Shamrani.
The group winners then hit back in spectacular fashion with goals from Harry Kewell (73 minutes), Alex Brosque (75) and Brett Emerton (76) as they ended up with 15 points from six games.
The Saudis, on six points, needed victory to reach the fourth round of Asian qualifying but defeat meant Oman (eight points) went through thanks to a 2-0 win over Thailand on Wednesday.
The triple Asian champions finished fatigued and demoralised on a drizzly night as they failed to progress to the World Cup finals for the second edition running, having gone through to the four previous tournaments from 1994-2006.
"If we had a little bit more courage and had stayed true to our game maybe it would have been different," gloomy Saudi coach Frank Rijkaard told reporters as he sat next to a team official who was cradling his head in his hands.
"It's really sad of course, a big blow. We were full of hope and wanted to fight for our chance and we did but we didn't succeed," the Dutchman added.
Australia initially struggled to adapt to a new attacking set-up but two-goal Brosque and strike partner Kewell combined well with midfield generals Mark Bresciano and Emerton in the second period.
OUTSTANDING BRESCIANO
Bresciano was outstanding and he set up Brosque's first goal in the 43rd minute and Emerton's late strike with two delightful through balls.
"I think in the second half we really got our stuff together. We played excellent football, we played the football I really like to see," said coach Holger Osieck.
"There was a lot of imagination, creativity... I'm very encouraged by this performance," the German added.
The Saudis started the game well and struck the first blow in the 19th minute.
Aldawsari sidestepped defender Mark Milligan and wrong-footed Bresciano before unleashing a blistering 25-metre drive that beat keeper Mark Schwarzer.
Playing in front of a crowd of 24,000, Australia responded through Brosque who ran on to a deft pass from Bresciano to poke the ball beyond goalkeeper Waleed Ali.
The Saudis went back in front in first-half stoppage-time when Hassan Fallatah crossed for unmarked striker Al Shamrani to convert.
Al Shamrani had a chance to make it 3-1 in the 72nd minute but produced a poor finish.
The floodgates opened a minute later as Brosque set up Kewell who drilled the ball low into the net.
Emerton then crossed from the right to create Brosque's second goal before Bresciano put the icing on the cake by laying on the fourth goal for Emerton.
