The Toffees were looking for their first back-to-back derby wins since their FA Cup winning season of 1994-1995.
After last season's 3-0 drubbing at Goodison, Liverpool were bent on gaining revenge, but would have to do it without top scorer, Fernando Torres, who Rafa Benitez decided against risking in this historically high-tempo game.
Liverpool set their stall out early doors as Andriy Veronin tested Tim Howard with a stinging drive on five minutes.
Just a minute later the same player drove over from a Steven Gerrard cross as the Reds took the game to Everton.
John Arne Riise, Yossi Benayoun, Javier Mascherano and Gerrard were linking well and causing deep problems down Everton's right-hand side.
Everton waited until around the 30th minute to settle but gradually started getting a foothold in the game
Leon Osman brought the game to life by going on a smart run to the line, before lofting a cross that bounced off Jose Reina's crossbar.
Victor Anichebe almost opened the scoring after Yakubu was brought down after a decent run from the left. Mikel Arteta's resulting free-kick found the youngster's head, but ended up on the roof of Reina's net.
When the goal came in the 37th minute it was courtesy of Liverpool's own Sami Hyypia, who managed to bury an innocuous Alan Stubbs cross into his own net.
Everton took spirit from the goal and finished the half strongly with one Joleon Lescott dart into the Liverpool half almost resulting in a second goal.
Everton flew out of the blocks after the break but disaster struck after just seven minutes when Gerrard was adjudged been to have brought down by Tony Hibbert.
Hibbert got his marching orders and Dirk Kuyt took the resulting penalty to level the scores.
Replays later suggested the incident was not quite as clear cut as it seemed, with minimal contact being made by Everton's unfortunate defender.
Referee Mark Clattenburg further infuriated the home fans just minutes later as he ignored what looked like a blatant penalty. Steve Finnan bear-hugged Lescott to prevent the Everton defender jumping for a corner.
Ten-man Everton refused to roll over and though Liverpool had more possession after the dismissal, the home side continued to pose a threat.
Everton looked likely to get a much deserved draw until Phil Neville handled on the line in stoppage time and Kuyt stepped up to make it 2-1 and break Toffees hearts.
Seconds later Everton were denied yet another penalty of their own, after Lescott was once again held down in the area, this time by Jamie Carragher.