Everton's 16-year-old striker Wayne Rooney produced a moment of brilliance in the last minute to end Arsenal's 30-game unbeaten run in the Premiership.
Rooney came off the bench to score his first ever Premiership goal and inflict Arsenal's first away defeat in 24 league matches.
Freddie Ljungberg had put Arsenal ahead as the Gunners netted for the 49th consecutive match, only for Tomasz Radzinski to equalise a quarter of an hour later.
The result means Arsenal have also been knocked off the top of the Premiership by Liverpool, who had beaten Leeds earlier on Saturday.
Arsenal keeper David Seaman's week ended in misery as he was once again beaten by a long-range effort.
His only consolation was that the quality of Rooney's strike was of the highest order.
Seaman had wanted to put his England nightmare behind him and it seemed the fans had forgiven his midweek blunder against Macedonia.
The 39-year-old may have hoped for a good reception from the travelling Gunners' fans but would not have imagined that Everton's faithful would join the ovation.
However, the universal show of support before the game did little to boost the veteran's confidence as the Toffees tried to exploit Seaman's high-ball weakness almost from the kick-off.
Mark Pembridge swung in the home side's first corner and, though the Welshman did not find the net as Artim Sakiri had done, Seaman flapped and missed his punch.
Seaman looked more comfortable when, late in the half, he tipped a fierce Thomas Gravesen drive over the bar to show not everything goalbound gets past him.
And an excellent second-half save from Gravesen's low strike further demonstrated Seaman's shot-stopping ability remains intact.
Arsenal's unbeaten run also looked set to remain intact after they took the lead through Ljungberg with just seven minutes gone.
David Unsworth should have cleared after Nigerian striker Kanu, playing in place of the injured Dennis Bergkamp, miscontrolled in the penalty area.
But the ball squirmed free, allowing Ljungberg to score on his 100th league appearance for the Gunners.
But 15 minutes later Everton were level.
Lee Carsley's shot struck the Arsenal post and the ball rebounded to Radzinski who jinked his way past two defenders before slotting home a deserved equaliser.
Arsenal had chances to clinch the match but Thierry Henry screwed wide, Sylvain Wiltord hit the post and Ljungberg chipped off target.
The visitors could not find the breakthrough and were made to pay in spectacular style when Rooney unleashed his historic late strike.
Everton: Wright, Hibbert, Yobo, Weir, Unsworth,
Carsley (Stubbs 90), Gravesen, Tie Li (Linderoth 55),
Pembridge, Radzinski (Rooney 80), Campbell.
Subs Not Used: Alexandersson, Gerrard.
Booked: Weir, Pembridge, Linderoth.
Arsenal: Seaman, Lauren, Campbell, Cygan, Cole,
Ljungberg (Edu 85), Silva, Vieira, Toure (Wiltord 64), Henry,
Kanu (Jeffers 71).
Subs Not Used: Luzhny, Shaaban.
Booked: Edu.
Attendance: 39,038
Referee: U Rennie (S Yorkshire).