Former Arsenal winger Karen Carney returned to haunt the Gunners with Birmingham's winner in a 2-1 victory.
The result stretched Blues' lead to six points at the top of the Super League after four wins in four matches.
England striker Ellen White gave Arsenal the lead, but striker Rachel Williams levelled on 64 minutes.
And White's England colleague Carney took advantage of dreadful defending to notch the winner, taking her season's goal tally to three in four matches.
Arsenal have played a game fewer than their opponents, but with this victory Birmingham have laid down an important marker for the season ahead.
With key players Faye White, Jayne Ludlow and Steph Houghton out injured, the Gunners were under-strength but not under-powered in a hard-fought encounter.
In an exciting game watched by 789 fans, both sides traded attack for attack in a first half that should have brought more goals than White's opener.
Birmingham almost found the first goal in the 14th minute, striker Williams firing in a 20-yard drive saved on the line by goalkeeper Emma Byrne.
Visiting keeper Marie Hourihan then had to keep out a 15-yard volley by midfielder Katie Chapman before White side-footed a decent chance wide on 29 minutes.
The miss of the match arrived three minutes later, when unmarked Blues right winger Dunia Susi blazed the ball hopelessly over the bar from eight yards.
The visitors paid for that wastefulness on 40 minutes when White raced on to right winger Danielle Carter's through-ball to score with a 30-yard lob which dropped inches under the bar.
White was wasteful herself two minutes into the second half, firing a 10-yard shot against the bar from left winger Rachel Yankey's low cross.
The Arsenal striker was then denied by Hourihan as the keeper spread herself to deflect a close range shot past the post.
That save proved crucial as Blues drew level minutes later, right-back Chelsea Weston crossing for Williams to loop a cleverly placed header beyond the reach of Byrne. It was her sixth goal of the campaign.
And the visitors swept into the lead when Carney latched on to central defender Gilly Flaherty's awful back-pass to go round Byrne and slide the ball home with 17 minutes remaining.
The home side worked hard for an equaliser and both Yankey and White sent efforts narrowly wide.
But Blues held out to claim a vital three points in the biggest game of the WSL season so far.
Carney said afterwards: "It was great to come here and win, but it wasn't about me coming back to Arsenal. It was about our team's performance. We had chances in the first half but didn't take them, but in the end we got what we deserved from an excellent match.
"It's a fantastic start for us, and although we won't get carried away we've got something really solid to build on."
Arsenal manager Laura Harvey, previously in charge at Birmingham, said: "We did well in the first half but then threw the game away.
"It was very disappointing, but it's still early days in the WSL so we'll regroup and go again - and we'll be aiming to get those points back when we go to Birmingham."