Pace spearheads Pat Cummins and Mitchell Starc took nine wickets between them and ran through Pakistan's batting order, bowling out the hosts for 268 to give Australia a shot at a series victory in the third and deciding test in Lahore on Wednesday.
At stumps on day three, Australia were 11-0 in their second innings with Usman Khawaja on seven and David Warner four.
Cummins finished with 5-56 and Starc bagged 4-33 to trigger an afternoon collapse which saw the home team lose their last six wickets off 40 balls with the addition of just 12 runs.
Australia were only able to add 11 to a comfortable 123-run first-innings lead as play ended seven overs early due to bad light.
The series is Australia's first in Pakistan for 24 years with security fears scuppering possible tours but the contest has been marred by flat pitches.
The first two tests in Rawalpindi and Karachi ended in high-scoring draws.
Pakistan looked well placed at 227 for three at tea having lost just Abdullah Shafique (81) and Azhar Ali (78) in the first two sessions but Starc and Cummins wreaked havoc with the second new ball.
Starc removed Fawad Alam (13) and Mohammad Rizwan (one) while Cummins bowled Sajid Khan (six) as Pakistan collapsed to 264 for six.
Pakistan skipper Babar Azam fought a lone battle, scoring 67 runs that included seven boundaries and a six, but wickets tumbled around him with the last four dropping with the addition of a single run.
Starc trapped Azam leg-before while Cummins polished the remaining tail.
The collapse allowed Australia to cover up their sloppiness in the field after Steve Smith dropped Azam when he was batting on 20.
Cummins hoped a good day's work would help them win the test.
"I thought that we bowled really well," he said. "We have given ourselves a really good opportunity (to win), really in front of the game and hopefully we will bat well and then take the last ten wickets."
Pakistan came out to bat on the third day at 90-1 and reached 159 at lunch without losing any more wickets but the second session saw Shafique and Azhar return to the dressing room in the space of 44 runs.
Lyon got rid of in-form Shafique in the fifth over after lunch when he forced an edge to wicketkeeper Alex Carey.
Umpire Aleem Dar did not raise the finger but a review by Cummins proved successful.
Shafique, who hit a century in the first test in Rawalpindi, batted for 323 minutes, hitting 11 boundaries.
Earlier in the day, Azhar reached a landmark 7 000 runs in his 94th test.
Azhar said he was happy with his milestone but not the match outcome.
"I am happy at the achievement in Lahore but unfortunately I could not carry on and we had a collapse after tea which has hurt our chances a little bit, but hopefully we can turn that around tomorrow," he said.
The former captain, who put on an invaluable 150-run stand for the second wicket with Shafique, became the 54th batsman and fifth from Pakistan to reach the milestone in test cricket.
The other Pakistani batters to cross 7 000 are Younis Khan (118 tests, 10 099 runs), Javed Miandad (104 tests, 8 832), Inzamam-ul-Haq (119 tests, 8 829) and Mohammad Yousuf (90 tests, 7 530).
Australia took the second new ball after 80 overs with the total on 191-2 and seven overs later Cummins held on to a sharp caught-and-bowled chance to dismiss Azhar.
Azhar batted for 337 minutes, hitting seven boundaries and a six in his 35th test half-century.
Australia toiled hard in the morning session and could have had some reward in the last over before lunch when Azhar, on 62, edged leg-spinner Mitchell Swepson, but Smith failed to hold on to the sharp chance at slip.
AUSTRALIA: David Warner, Usman Khawaja, Marnus Labuschagne, Steve Smith, Travis Head, Cameron Green, Alex Carey, Mitchell Starc, Pat Cummins (captain), Mitchell Swepson, Nathan Lyon
PAKISTAN: Abdullah Shafique, Imam-ul-Haq, Azhar Ali, Babar Azam (captain), Fawad Alam, Mohammad Rizwan, Nauman Ali, Sajid Khan, Hasan Ali, Shaheen Shah Afridi, Naseem Shah