Nathan Lyon's five-for helped Australia bowl out Sri Lanka for 212, before the hosts hit back with three wickets in a fast-moving opening test on Wednesday.
Wicketkeeper-batsman Niroshan Dickwella made a defiant 58 before the Sri Lankan innings folded in the third session of a fast-moving game on the opening day of the two-match series.
The tourists reached 98 for three at stumps after Sri Lankan spinner Ramesh Mendis struck twice, including David Warner's key wicket for 25, on a turning pitch at the picturesque Galle stadium.
Steve Smith was run out on six after a mix up with opener Usman Khawaja, unbeaten on 47, and returned to the pavilion waving his hands in dismay.
Khawaja and fellow left-hander Travis Head, on six, were batting with Australia still trailing by 114 runs in their first innings.
Mendis, an offspinner, trapped Warner lbw after the left-handed opener hit five boundaries in an attacking stay at the wicket.
Marnus Labuschagne was out to an attempted reverse sweep but it was Smith's wicket that brought the home crowd alive. The former captain was turned down midway for a quick single by Khawaja and failed to make the crease despite a desperate dive.
Khawaja, who survived a missed stumping by wicketkeeper Niroshan Dickwella, kept up the fight till close of play.
Earlier, Dickwella made a defiant 58 before the Sri Lankan innings folded in the third session following the hosts' decision to bat first at the start of the two-match series.
Lyon, who bagged his 20th five-wicket haul in tests, combined with fellow spinner Mitchell Swepson, a legspinner who took three wickets, to rattle the opposition batting.
Fast bowlers Pat Cummins and Mitchell Starc struck early with a wicket each as Sri Lanka took lunch at 68-2. The spinners soon took charge on a pitch traditionally known to assist the slow bowlers.
The left-handed Dickwella counter-attacked during his 59-ball stay at the crease and put on key partnerships, including a 54-run stand with Mendis, who made 22, for the seventh wicket.
Dickwella reached his fifty off 42 balls in the second session but Lyon finally got him out, also sending back Mendis after tea.
Lyon got his fifth wicket in Lasith Embuldeniya and Swepson, who was on a hat-trick denied by Dickwella, ended the innings after 59 overs.
Angelo Mathews also contributed to the Sri Lankan total with his 39 and stood with Dickwella in a 42-run stand broken by Lyon.
Sri Lanka are bowling with four spinners and a lone fast bowler in Asitha Fernando. Debutant legspinner Jeffrey Vandersay bowled three overs.
The island nation, which won the one-day international series against Australia 3-2, is battling an unprecedented economic crisis, with people across the country struggling to pay for food, fuel and other necessities.
SRI LANKA: Pathum Nissanka, Dimuth Karunaratne (capt), Kusal Mendis, Angelo Mathews, Dhananjaya de Silva, Dinesh Chandimal, Niroshan Dickwella, Ramesh Mendis, Jeffrey Vandersay, Lasith Embuldeniya, Asitha Fernando
AUSTRALIA: David Warner, Usman Khawaja, Marnus Labuschagne, Steven Smith, Travis Head, Cameron Green, Alex Carey, Pat Cummins (capt), Mitchell Starc, Nathan Lyon, Mitchell Swepson