Dashing half centuries to Dave Warner, Phil Hughes and Michael Clarke on Friday gave Australia the upper hand in the third Test but Sri Lankan spinner Rangana Herath sent a wicked warning on a wearing SCG wicket.
Australia finished day two at 6-342, a 48-run advantage in response to Sri Lanka's first-innings total of 294.
That was largely thanks to a 130-run partnership between Warner (85) and Hughes (87) who both chastised themselves for throwing away centuries.
Clarke, who scored a brisk 50, on Thursday became the first captain in 21 years to win a toss and field first in the New Year Test.
It was a decision largely guided by the selection of four fast bowlers, but may well be one he will rue based on the return of Sri Lanka's impressive left-armer Herath who finished the day with 2-69.
Herath generated good turn from his first over, a danger sign given the already-dry wicket is expected to deteriorate on the fourth and fifth days.
Tillakaratne Dilshan's part-time offspin brought Warner undone, while two run-outs also hurt the home side.
One ended Michael Hussey's emotional innings in his last Test for just 25 runs.
Hussey was run out after being called through by Clarke for a quick single late in the day.
He walked off to a standing ovation from the crowd of 26,420, having walked on through a guard of honour provided by the Sri Lankans.
Opener Ed Cowan was also run out, paying the price for hesitating when returning for a second run - eventually caught well short of his ground for just four.
The match looked to be getting away from Sri Lanka when Hughes and Warner were toying with their pop-gun pace attack.
But Sri Lanka benefited from a rush of blood to Warner's head when he was well caught by Dhammika Prasad at mid-on off Dilshan, and Hughes was caught behind off Herath seven overs later.
And after a 56-run partnership, the twin dismissals of Hussey and Clarke presented Sri Lanka with an early opportunity at Australia's long tail.
Wicketkeeper Matthew Wade, elevated to No.6, justified his move up the order by carrying Australia to stumps with an unbeaten 47.
But Mitchell Johnson, promoted to No.7 following his 92 not out in the Boxing Day Test, was caught behind on 13 to become just Nuwan Pradeep's second Test scalp.
And while some players struggle through the nervous 90s, Wade had to endure a nervous 22.
The 25-year-old first survived an unsuccessful challenge on a caught behind decision, was then dropped at short leg by Lahiru Thirimanne before finally being given out caught by the same player.
Wade successfully challenged that decision and his response was swift - two powerful sweep shots which struck Thirimanne on either thigh and left him wincing in pain.
The youngster, who top-scored for Sri Lanka with a stirring 91 on Thursday, earned a sympathy cheer from the crowd when he resumed his place in the firing line.
Peter Siddle finished 16 not out.
- Sydney Morning Herald
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