The result puts the Highlanders in a strong position to claim a wildcard spot in the Super Rugby playoffs, moving into second place in the New Zealand conference.
They dominated the early exchanges and were unlucky not to open the scoring in seventh minute, when prop Aki Seiuli crawled over the tryline, but was penalised for a second movement.
First-five Marty Banks eventually got the scoreboard ticking over, when the Waratahs were deemed offside at a ruck and he slotted a penalty from near halfway.
Almost immediately from the kick-off, the Highlanders extended their advantage to double figures, somewhat fortuitously, when they took advantage of confusion around a Waratahs defensive scrum.
Number eight Luke Whitelock blocked an attempted clearance kick and Richard Buckman gathered the deflection to cross in the corner. Replays suggested he may have been ahead of Whitelock, but game officials gave him the benefit of the doubt and Banks converted from the sideline.
That injustice seemed to spark the Waratahs to life and they snatched two converted tries to Israel Folau and Taqele Naiyaravoro to edge ahead by halftime.
Folau brushed off the attempted tackle of flanker Elliot Dixon to sprint 30 metres for his touchdown.
Banks clawed back some of that lost ground with a penalty goal from a defensive scrum, but when Highlanders fullback Ben Smith spilled a missed penalty attempt from Waratahs kicker Bernard Foley, from the scrum, Naiyaravoro ran from deep and broke Smith's tackle for the try.
"We just had to keep playing and we knew we'd get our chances," reflected Smith afterwards. "We just wanted to lift the tempo a bit and play at our speed."
The home side seized back that momentum soon after the second-half restart, when Waratahs lock Dean Mumm was yellow-carded for dumping Dixon in a lineout, and from the penalty and subsequent lineout, hooker Liam Coltman was driven over the line in a maul.
"We managed to score from that lineout and things changed from there, but it was a tough game," said Smith.
Still a man up, the Highlanders were over again three minutes later, after left wing Tevita Li gathered a chip kick from Malakai Fekitoa to cross untouched. Banks uncharacteristically missed both conversions, but the Highlanders were back in charge at 23-14.
Over the closing 20 minutes, the Highlanders bench cut their counterparts to ribbons, with Rob Thompson, Daniel Lienert-Brown and Lima Sopoaga running in some breath-taking tries.
Sopoaga was particularly impressive in his 20-minute cameo, as he continued his comeback from a long injury break to stake his claim for an All Blacks spot against the British & Irish Lions next month.
Waratahs replacement Jake Gordon bagged a try-scoring double to give his team some respectability in the final scoreline.
"Discipline killed us against a solid team like the Highlanders, who took their opportunities well," rued Waratahs captain Michael Hooper. "I thought their second half was fantastic."
The Highlanders now take their nine-game winning streak into a crunch encounter against the conference-leading Crusaders next week.
