Swindon's unbeaten league record in 2012 was brought to an abrupt end by local rivals Oxford, who played for 80 minutes with 10 men.
U's striker James Constable saw red for a challenge on Joe Devera, but two quick goals soon after stunned the League Two leaders.
Asa Hall stabbed home from close range before Oli Johnson found the end of Lee Holmes' cross to double their lead.
Swindon dominated possession in the second half but the U's held firm.
It was the first time the two sides had met at the Kassam Stadium in the league since its opening in 2001, and their fierce rivalry was evident both on and off the pitch.
Home tickets for the clash sold out well before the turn of the year, and the 11,825 capacity crowd tormented each other throughout the game.
The on-field drama started after just 10 minutes, when Constable - Oxford's top scorer last season and a Swindon target in the January transfer window - was shown red for an apparent elbow on Devera.
Despite their numerical advantage, Swindon found themselves two goals down in as many minutes.
Hall managed to stab the ball past keeper Wes Foderingham after Holmes' free-kick and the midfielder was on hand again to whip in a pinpoint cross for Johnson to easily knock home.
Swindon eventually found their stride but U's keeper Ryan Clarke pulled off a string of fine saves from Ronan Murray and Matt Ritchie - who also smashed an effort off the post before being booked for an altercation with a ball boy.
The second half was less eventful and the Robins will be left to rue several missed chances that could have brought them back into the contest.
Luke Rooney shot straight at Clarke before hitting the side netting moments later, while Paul Benson was also denied by the U's shot-stopper and Ritchie carelessly spurned a free-kick well wide of goal.
Substitute Billy Bodin saw his effort from six yards out go close but it was the hosts who earned the three points - and bragging rights - over their local foes.
VIEWS FROM THE DRESSING ROOM
Oxford United manager Chris Wilder tells BBC Radio Oxford:
"It was a massive effort and full credit to Paolo Di Canio because he has built a good side (at Swindon) and they are heavily backed.
"It was a massive test and we've rode our luck at times, and we've been indebted to some magnificent goalkeeping, but we knew that was going to be the case, especially when you have 10 men who are not regulars in your side.
"i'm delighted for our supporters because they do get frustrated, like I do and I would like us to be a lot closer to Swindon who in my mind will go up. We've still got loads to play for and this will be important."