On a night of mixed fortunes for Brazilian sides, holders Internacional lost 1-0 to Chiapas in Mexico and domestic league champions Fluminense lost 2-0 to Nacional of Uruguay in Montevideo and are bottom of Group Three with one match left.
Santos were down to nine men from the 55th minute and the Chilean team down to 10. In the dying minutes one more man from each side was sent off, Santos' Brazil midfielder Elano from the bench after he had been substituted.
Group Five, after four rounds of matches, is led by Paraguay's Cerro Porteno with eight points following a 2-0 away win over Deportivo Tachira in Venezuela.
Colo Colo are second with six points and Santos third with five after their first win. Tachira have two points.
Santos scored twice in less than two minutes just past the half hour with an Elano free-kick and a fine goal from man-of-the-match Danilo.
Gifted Brazil teenager Neymar added a brilliant solo effort early in the second half jinking into the box with superb close control including a lob over a defender to chip past Colo Colo's Uruguayan goalkeeper Juan Castillo.
But Neymar's celebration earned him a second booking and the first red card of the match from Uruguayan referee Roberto Silvera for donning a mask and parading it for the crowd.
Two minutes later a foul by Santos forward Ze Eduardo led to him and Colo Colo's Uruguayan captain Andres Scotti being sent off for squaring up to each other and sparking a brief free-for-all.
The tension rose as 10-man Colo Colo chased the game against their nine-man rivals. The action went from end to end with the Chileans pulling two goals back in a dramatic final eight minutes with two fine strikes from left wing-back Patricio Jerez and substitute Diego Rubio.
Following Elano's dismissal from the bench for reasons that were not immediately clear, Colo Colo midfielder Cristobal Jorquera was shown the red card in added-time for a foul as the Libertadores Cup showed its two faces, brilliant play and sometimes bad behaviour.
America of Mexico went top of Group Three when they came from a goal down to beat Argentinos Juniors 2-1 at the Azteca. America have nine points, two more than Argentinos and Nacional with Fluminense bottom on five.
Striker Santiago Garcia scored both Nacional's goals in the second half and their Argentine playmaker Marcelo Gallardo was sent off five minutes from time for a second booking.
Internacional, champions in 2006 and last year, only needed a draw to ensure they reached the last 16, but instead now face a difficult final Group Six match at home to Emelec of Ecuador in two weeks' time.
Inter have 10 points, one more than Chiapas. Emelec of Ecuador are third with seven points and two games to play while Bolivia's Wilstermann have lost their four games.
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