The tourists suffered a huge wobble after tea on the fourth day at Trent Bridge and still need 137 runs to snatch what would be a miraculous victory with only four wickets remaining.
But with the stubborn Brad Haddin (11 not out) and debutant Ashton Agar - promoted to number eight after his first-innings 98 - still at the crease, skipper Michael Clarke remains upbeat on their chances.
Atherton agrees Alastair Cook's men should not be too complacent and told Sky Sports: "A captain will always puts a positive spin on it but Haddin is an excellent cricketer and he's someone you would want in this situation.
"Agar is a fine player and there are more expectations on him now so that changes the dynamics, but the Australian tail have all got runs. England are obviously very strong favourites but the Aussies do all bat and there is room to be optimistic.
"It's not done yet and Haddin is a tough cricketer. The pitch hasn't got much pace, you can't score quickly and it's difficult to rattle that scoreboard along."
Set a target of 311 to seal victory in the opening Ashes Test, Australia looked comfortable earlier in the day, only to suffer a collapse in the last session with Graeme Swann finally producing the goods with the ball, alongside paceman Stuart Broad.
Australia have only once successfully chased more than 250 to win in England (1948) and there may well be a few surprises in store for the sell-out crowd on the final day.
"Graeme Swann disappointed today until he got his first wicket in his 22nd over," Atherton added. "Maybe it was the pressure of the occasion and being expected to perform on a wearing wicket. But when he struck he looked dangerous and he'll be dangerous on Sunday."
Michael Holding has the greatest respect for the Australian batsmen but agreed the damage had already been done and the prospects looked bleak for Clarke's battling team.
"Australia are in a completely different situation than their last innings," the West Indian legend said. "You can play a natural innings at the start of a match when you're thinking that your bowlers can get you back in the match even if you get out.
"But there's now the extra pressure of knowing that this is it - it's now or never - and the batsmen won't feel as free. They are looking a little cagey.
"Getting another 140 runs will take them a long time on Sunday and I don't see them getting it without losing four wickets."
Watch the final day's play from 10am on Sky Sports Ashes HD, the Ashes Events Centre - available via the Sky Sports App - or with a NOW TV day pass.