Mark Gower's freak goal and Peter Clarke's strike gave Southend a Championship survival lifeline.
Gower's cross from the left bounced through a crowd of players to put the Shrimpers ahead on 35 minutes.
Southend doubled their lead seven minutes later when Clarke volleyed in Kevin Maher's free-kick.
Ipswich were denied by some fine saves from keeper Darryl Flahavan, while Town's Alan Lee was sent off for his second yellow card late on.
Ipswich boss Jim Magilton:
"The first half was woeful. It was a local derby and I wish someone had told our lads.
"We were second to every ball whereas Southend would rather have died than lose that game.
"Alan Lee's sending off was idiotic and naive from one of our senior players. When we needed him most he let us down."
Southend manager Steve Tilson:
"It puts us right back in the mixer with the other clubs even though results haven't gone our way.
"If we can win five of our remaining games I think we'll stay up.
"Our home games will keep us up this year and they are massive games. We've got to play four of the teams around us."
Ipswich: Price, Wright, De Vos, Bruce, Harding, Peters, Legwinski (O'Callaghan 68), Garvan, Roberts (Clarke 78), Jeffers (Haynes 27), Lee.
Subs Not Used: Supple, Wilnis. Sent Off: Lee (78).
Booked: Lee, Harding, Bruce, Clarke.
Southend: Flahavan, Hunt, Sodje, Clarke, Francis, Campbell-Ryce, Maher, McCormack, Gower (Hammell 83), Eastwood (Moussa 90), Bradbury (Harrold 81).
Subs Not Used: Collis, Prior.
Booked: Francis, McCormack.
Goals: Gower 35, Clarke 42. Att: 24,051
Ref: M Atkinson (W Yorkshire).