Ruben Neves scored a 95th-minute winner as Wolves came from 2-0 down to snatch an incredible victory in an extraordinary West Midlands derby.
Wolves looked down and out when John McGinn added to Danny Ings’ opener to give Villa a two-goal cushion midway through the second half.
But in a dramatic final 10 minutes, Wolves scored three times to seal a third straight Premier League win.
Romain Saiss reduced the deficit from inside the six-yard area, then Conor Coady bundled in an 85th minute equaliser after Max Kilman had headed against the bar.
Neves struck in the fifth minute of stoppage time when his free-kick took a deflection on its way past Emiliano Martinez to complete an astonishing comeback.
There was little sign of the drama to follow when Ings headed the home side ahead after McGinn beat Saiss to send in a cross.
The Scotland midfielder added the second with a deflected shot from long range after Ollie Watkins’ attempt had been blocked.
Wolves’ recovery began in the 80th minute when Saiss struck from substitute Daniel Podence’s cross, but an away win still looked a tall order at that stage.
There were five minutes of normal time left when Coady made it 2-2 soon after Kilman had struck the bar.
Neves’ last-gasp winner sent Wolves’ travelling fans wild with delight – and left Villa to reflect on a first league home defeat since 9 May.
Wolves put faltering start behind them
After losing their first three league games, Wolves are now eighth in the table after eight games and their faltering start to life under Bruno Lage is a distant memory.
Suddenly they are one of the form teams as they equalled the club record of three consecutive Premier League away wins, set in June last year when the third victory was also at Villa Park.
While Villa will be livid with the way they threw this game away, Wolves showed tremendous character to keep fighting to the end.
Their fourth win of the season was secured with the in-form Raul Jimenez starting on the bench.
Jimenez, who had scored one goal and assisted another two in the previous two league games, came off the bench in the 88th minute with the score 2-2.
After Jacob Ramsey had fouled Adama Traore just outside the box deep in stoppage time, Jimenez stood over the free-kick before moving away for Neves to complete an unlikely victory.
Villa left to pick up the pieces
Villa have impressed this season with wins over Newcastle, Everton and a first victory in 12 years at Manchester United.
After going into the international break on the back of a 2-1 defeat at Tottenham, they now have to pick up the pieces from this damaging derby defeat.
Smith opted to start with keeper Martinez and midfielder Douglas Luiz – despite the fact they played for Argentina and Brazil respectively in the early hours of Friday morning UK time.
Both had rushed back to Birmingham after being involved in World Cup qualifiers.
Martinez did make a fine save to keep out Traore when the game was goalless, while Luiz went close in the first half with a long-range attempt.
But neither could prevent their side from slipping to defeat, and Villa must regroup before their next match, away at Arsenal on Friday.
