It was an amazing piece of fielding and Marnus Labuschagne followed that up next ball with some magic of his own, running in from deep square leg and diving forward to take another sensational catch to send Jos Buttler back to the pavilion for a quickfire 47.
In commentary for Sky Sports, Australian legend Ricky Ponting called Smith's grab an "absolute screamer" while former England captain Michael Atherton said both catches were "absolutely stunning".
At the start of the day, Rory Burns and Joe Denly put on the first 50-run opening partnership of the series by either side before their stand ended on 54 when Burns was caught behind trying to cut Nathan Lyon. The off-spinner struck again when Joe Root edged a straight ball to slip for 21 before Denly and Ben Stokes combined to bat Australia out of the game.
Australia went wicketless in the second session as they knuckled down to ensure England kept its foot on the throat. Denly failed to pass 30 in the first two Tests but has bounced back since then, scoring half centuries in Leeds and Manchester before registering his highest score of the series in his final visit to the crease.
Promoted from No. 4 to opener, Denly stroked 14 fours and one six on his way to a career-high 94 but unfortunately for him he was unable to make his maiden Test century when he edged Peter Siddle to first slip.
The 33-year-old walked off slowly, devastated at missing out on the milestone but he can be proud of the way he played. Denly was excellent off his pads whenever the quicks got too straight and he used his feet to smack Lyon down the ground – both to the rope and over it.
Stokes was equally as defiant, continuing his good form with the willow and showing plenty of patience before releasing the shackles after tea. But on 67, Lyon ended his and Denly's 127-run, third wicket partnership with an off-spinner's dream delivery.
He angled the ball in to the left-hander then spun it past the outside edge and hit off stump, giving the Aussie tweaker the first three wickets of the innings.
Jonny Bairstow was out for 14 when he edged Marsh to Smith at slip. The third umpire was called on to check whether the ball carried and Smith wasn't willing to make a definitive call, not needing to give the English locals any more reason to boo him.
"I don't need any controversy lads, I'm not saying anything," Smith said.
Replays confirmed Smith pouched the catch without any issues, bringing Sam Curran to the crease and the all-rounder hit a brisk 17 before he was strangled down the leg side when Pat Cummins was brought back into the attack when the second new ball became available.
Buttler, who top scored with 70 in the first innings, picked up where he left off by taking advantage of an Aussie bowling group which was clearly tired at the end of a long tour. Buttler scored quickly in the final session, cruising to 47 with six boundaries.
Australia toiled hard but the bowlers lacked their usual punch. Siddle was expensive, finishing with 2/52 from 13 overs, while Lyon was the best with 3/65.
The fifth and final Ashes Test is finely poised after a gripping second day that saw England edge ahead slightly and keep its hopes of a 2-2 series result alive.
After losing its last two wickets early in the morning and being knocked over for 294, the home team's bowlers then hit back even as Steve Smith did his best to end England's summer on a miserable note.
England bowled Australia out for 225 late in the day then went so stumps at 0/9 to take a 78-run lead into day three, which it will be hoping to build upon in its last outing with the willow on home soil for some time.
Joe Denly was given a let-off by Marcus Harris, who dropped a simple chance at gully in the last over of the day.
Jofra Archer led the way with the ball for England, taking six wickets in a wholehearted display that once again showed just how talented he is. The brilliant fast bowler had to thank Rory Burns for his sixth scalp after the batsman took a freakish catch to dismiss Peter Siddle and end the Aussie innings.
Nine wickets down, Siddle glided a ball wide of gully but it wasn't wide enough. Burns dived low to his right to catch the ball – which was travelling at serious pace – with one hand in a spectacular display of athleticism.
Australian legend Ricky Ponting called it a "screamer" in commentary and former England player and coach David Lloyd said it was an "absolute stunner".
It was fitting Archer finished the job after starting the rot, getting rid of David Warner and Marcus Harris cheaply to reduce the tourists to 2/14 as the top order failed again. Warner was given out caught behind for five after DRS intervened and Harris edged to second slip for three.
Once again it was left to Steve Smith and Marnus Labuschagne to rescue Australia and they set about the task with their usual aplomb. Labuschagne was eyeing off his fifth half century in six innings but fell two runs shy of the milestone after being trapped LBW by Archer, ending a 69-run partnership between the pair.
But as sure as day follows night, Smith tormented England again. Not content with two centuries, two half centuries and a double ton this series, the world's No. 1 ranked Test batsman made life miserable for the hosts.
He latched onto anything short, particularly savage with his back-foot punches through point, and was quick to punish full deliveries through the covers. Smith launched spinner Jack Leach down the ground for six to reach his 10th half century in a row against England.
The 30-year-old looked certain to reach triple figures for a fourth time this series but he was running out of partners. Matthew Wade was LBW to Sam Curran for 19 and Mitch Marsh looked solid before he hooked Archer straight to fine leg on 17 as the Aussies failed to convert their starts.
Playing his first match of the series, Curran then brought the match to life by taking two wickets in two balls. The left-hander had Tim Paine edging behind for one then bowled the perfect inswinger to trap Pat Cummins LBW for a golden duck.
The Oval was rocking but a hat-trick eluded Curran, who finished with figures of 3/46.
Smith then shocked everyone by missing a ball on his pads to be dismissed LBW by Chris Woakes for 80. Normally so strong off his pads, Smith never misses balls when he tries to whip through the leg side but there's a first time for everything and the former captain's rare error left him 20 runs shy of a century.
"It's the first time in the series he's missed a straight one," former England captain David Gower said in commentary for Sky Sports.
Nathan Lyon took the long handle to the England attack, blasting a quickfire 25 from 30 balls but was undone by a clever Archer slower ball, bowled trying to smear him over the infield.
When Siddle picked out Burns Australia was all out for 225 and England had a tricky 20 minute period to bat before stumps. Burns and his opening partner Denly had some nervous moments but safely guided their team to the close of play.
