A devastating 17-minute spell stunned the home crowd into silence and proved enough to secure Wanderers' fourth win in five games, as well as their first league double over their neighbours in 14 years, despite a valiant fightback from the hosts.
Stephen Hunt converted the opener after 20 minutes following a largely quiet first quarter, with Sylvan Ebanks-Blake taking advantage of some lackadaisical defending to head home a second.
Shane Ferguson clipped the outside of a post for Blues, who could feel somewhat hard done by on the overall balance of play as they then conceded a third, Kevin Doyle brought down by Jack Butland in the area and Ebanks-Blake slotting home the resulting penalty - with Smethwick-born David Davis playing his part in all three.
Yet Wade Elliott gave Blues hope early in the second half, converting a spot-kick and the home side had a host of further chances to reduce the deficit - Wes Thomas the most profligate figure, coming closest when he headed against a post.
The on-loan Bournemouth striker then nodded over before dragging two chances wide, with Nathan Redmond wasting a clear opening of his own when he blazed over from a good position.
Elliott set up a frantic finale when he converted his own rebound following a saved 95th-minute penalty but the thrilling derby defeat ended a three-match winning run for City, who despite being 10th in the table are themselves just five points off the drop zone.