Inglis joined big gun Alex de Minaur in the round of 32 and booked a showdown with two-time champion Naomi Osaka after defeating German veteran Laura Siegemund 6-4 6-7 (3-7) 7-6 (10-7).
It was a tense, gruelling and sometimes fiery match that lasted three hours and 20 minutes on ANZ Arena.
After failing to serve out the match in the second set, the 28-year-old's hopes of progressing seemed over.
But in mirroring her first-round win over close friend Kim Birrell, when she failed to convert a gilt-edged opportunity, Inglis turned it around by breaking back when Siegemund was serving for the match at 5-4 in the third set.
Despite hurting herself late when stretching for a ball, the Perth product recovered and overcame some nervous moments to win the first-to-10-point tiebreaker.
"I actually didn't know I had that in me at the moment, but it's crazy once you get out there and get playing," said Inglis, who is in the main draw of a grand slam for the first time in four years.
"You want it so bad, it's crazy what you can do. I'm so happy.
"It was an amazing win against a really tough competitor, so I'm stoked, and I can't believe I'm back in the third round."
Inglis fell to the ground after winning the final point in a tense rally, becoming the only Australian woman to make the third round.
"I didn't come in with high expectations. I can take it to anyone on any given day, but I wouldn't have dreamed of this," Inglis said.
"Coming into this, I hadn't played a match for six weeks."
Inglis has spent six hours and 21 minutes on court in her two main-draw singles matches this campaign, plus a doubles match and three qualifying wins.
After not playing in the main draw of a grand slam since 2022, Inglis is guaranteed to pocket $327,750 for reaching the third round.
Currently ranked No.168 but sure to sharply rise, Inglis has equalled her best result at a major, which came at Melbourne Park four years ago.
After 11 Australians qualified for the second round, de Minaur and Inglis are now the only locals left.
Rinky Hijikata and Dane Sweeny bowed out early on Thursday, both going down to higher-ranked opponents.
Two days after winning his first match at a major, Sweeny was blown away by American eighth seed Ben Shelton in just an hour and 42 minutes.
Hijikata was bullied early by 30th seed Valentin Vacherot, before briefly fighting back in the first match of the day on Kia Arena.
Pinching the third set, the 24-year-old made the Monaco player - playing at Melbourne Park for the first time - work harder for his win than he had earlier anticipated.
But Vacherot closed out the match 6-1 6-3 4-6 6-2 after Jordan Thompson, Ajla Tomljanovic, Talia Gibson, Storm Hunter and Priscilla Hon were all second-round casualties on Wednesday.
World No.6 de Minaur was the only Australian to advance on Wednesday, eventually demolishing Serb Hamad Medjedovic after being outplayed in the first set.
Wildcard Taylah Preston was able to take a set off 13th seed Linda Noskova, but the 20-year-old lost to the Czech star 6-2 4-6 6-2.
Facing the biggest mountain of them all to climb, veteran wildcard James Duckworth succumbed 6-1 6-4 6-2 to dual defending champion Jannik Sinner.
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