The Waratahs' chance of reaching the Super 14 play-offs took a big blow on Friday, after crashing to the Highlanders 26-10 in Invercargill.
In testing conditions, the lowly Highlanders outscored their visitors by three tries to one with Mat Berquist's boot keeping the home side on track for a memorable win and only their third of the season.
The Highlanders scored fourteen unanswered points in the second half, after taking a narrow 12-10 lead over the Waratahs into the break on a miserable night at Rugby Park.
The clash in the most southern city of New Zealand was hampered by wind and rain, which made it difficult for the players to hold on to the ball. Both teams struggled to play expansively as their attacks were spoiled by frequent handling errors.
This played into the home team's favour as it led to a forward-orientated game. The two sides depended on their heavies to build momentum and gain territory on attack, but it was the Highanders' forwards who were more effective in the wet.
Loose forwards Steven Setephano and Adam Thomson accounted for their first-half tries, Setephano after forcing his way across the line from a 5m scrum and Thomson after accepting a wide pass from a ruck by scrum-half Jimmy Cowan.
The Waratahs took 20 minutes to get into the game and show a semblance of ball control but proved how dangerous they could be at 3-12 down when full-back Kurtley Beale scored a try in the 33rd minute after finding space off an in-pass from centre Berrick Barnes.
But the Highlanders made much the better start after the break, quickly extending their lead to 20-10 after Thompson scored his second try and Berquist added a penalty.
Thomson's second five-pointer in the 46th minute came after he was on hand to take the final pass from lock Josh Bekhius, who had been given space down the right-hand touchline after full-back Israel Dagg slipped a tackle on the short side.
More pressure and field position led to another two penalties to Berquist as the Highlanders stretched their advantage further, leaving the Waratahs to chance their arm in unhelpful conditions.
The Aussies had a late opportunity to gain what was to be a consolation score but the Highlanders held on for the first upset win of Round Twelve.
Man of the match: The loose forward trio of number eight Steven Setephano, Adam Thomson and Alando Soakai were prominent as the home side made light of the difficult conditions, repeatedly turning the visitors on their heels with short, sharp incisions around the rucks and mauls. But our vote goes to hooker Jason Rutledge who threw his powerful frame at everything that moved.
Tries: Setephano, Thomson 2
Pens: Berquist 3
Highlanders: 15 Israel Dagg, 14 Ben Smith, 13 Kenny Lynn, 12 Jason Shoemark, 11 Fetu'u Vainikolo, 10 Mat Berquist, 9 Jimmy Cowan (c), 8 Steven Setephano, 7 Alando Soakai, 6 Adam Thomson, 5 Hayden Triggs, 4 Josh Bekhuis, 3 Clint Newland, 2 Jason Rutledge, 1 Chris King.
Replacements: 16 Peter Mirrielees, 17 Bronson Murray, 18 Joe Tuineau, 19 John Hardie, 20 Scott Cowan, 21 Matt Berquist/Robbie Robinson, 22 James Paterson.
Waratahs: 15 Kurtley Beale, 14 Lachie Turner, 13 Tom Carter, 12 Berrick Barnes, 11 Drew Mitchell, 10 Daniel Halangahu, 9 Josh Holmes, 8 Ben Mowen, 7 Phil Waugh, 6 Dave Dennis, 5 Kane Douglas, 4 Dean Mumm (c), 3 Al Baxter, 2 Tatafu Polota-Nau, 1 Dan Palmer.
Replacements: 16 Damien Fitzpatrick, 17 Jeremy Tilse, 18 Chris Thomson, 19 Patrick McCutcheon, 20 Luke Burgess, 21 Rory Sidey, 22 Sosene Anesi.
Referee: Bryce Lawrence (New Zealand)