New Zealand spinner Daniel Vettori has claimed 4-36 in his 100th Test to help skittle Australia for 231 on day one of the second Test.
Skipper Ricky Ponting chose to bat first at Hamilton's Seddon Park and Australia's batsmen struggled to cope with the slow-paced pitch and the disciplined bowling of Vettori and paceman Tim Southee (4-61).
Opener Simon Katich top-scored with 88 in his 50th Test.
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Poor decision-making cost Australia dearly, as Ponting (22) fell to an ambitious attempted single and vice-captain Michael Clarke played an ugly slog to long-on.
Opener Shane Watson (12) mis-timed a pull shot in the eighth over and was caught at mid-on from the bowling of Southee.
Ponting pushed a ball to mid-off and set off for a single but his rival skipper Vettori threw the stumps down at the non-striker's end at 2-63.
The Australian skipper's 13th run out sets a world record.
Southee struck again after lunch when Mike Hussey, in his 50th Test, was caught behind for 22.
Aiming for centuries in three successive Tests, Clarke scored 28 in 33 balls, holing out to the bowling of spinner Jeetan Patel.
Vettori claimed the key wicket of Katich caught at short leg in the penultimate over before tea at 5-180.
Katich was dejected as he left the field, dismissed between 80 and 99 for the fifth time this summer in 12 innings. The left-hander struck 11 fours in his four-hour stay.
Australia lost 3-1 in eight deliveries after tea when Southee removed Brad Haddin (12) and Marcus North (9) and Mitchell Johnson (0) fell victim to Vettori.
Australia's 74.3-over innings was their lowest total in New Zealand since their 214 in Auckland in March 2000.
Earlier, Ponting won the toss for the eighth successive time, including the five ODI matches and two Tests on the New Zealand tour.
Australia lead the two-Test series 1-0.
