Harry Kewell equalised in the 78th minute as Australia twice came back from a goal down to earn the point they needed to finish runners-up to Brazil. They face Italy in the last 16.
Three players -- Croatia's Dario Simic and Josip Simunic plus Australia's Brett Emerton -- were sent off in a dramatic finale with Simunic appearing to be shown three yellow cards by English referee Graham Poll in the confusion.
''It was great. What a great game tonight, you couldn't ask for more,'' said Australia skipper Mark Viduka.
''We threw on all the forwards to try and get something and thank God Harry was in the right place at the right time.'' Midfielder Tim Cahill added: "Harry was injured then he scored.
It's something very special for us all to go through to the second round. It's a very special day for Australia.
Croatia captain Niko Kovac had put his team ahead for the second time 11 minutes after the break with a long range shot that bobbled past Australia goalkeeper Zeljko Kalac.
Australia defender Craig Moore had scored a 38th minute penalty to cancel out a third minute goal by Croatia midfielder Darijo Srna but it was Kewell's late goal that saw Australia advance to play Italy in Kaiserslautern on Monday.
CAUGHT NAPPING Srna caught the Socceroos napping early with a superbly taken free kick after Australia skipper Viduka tripped Niko Kovac just outside the area.
Srna, who had missed a penalty in Sunday's scoreless draw with Japan, made amends when he curled the ball over the wall past Kalac to score his country's first goal of the tournament.
''It's very difficult when you cop a goal that early but we knew if we kept our composure we could do some damage. We showed we had the spirit to do it," said Viduka.
Australia regained their composure and looked to have strong grounds for a penalty when defender Simunic brought down Viduka but referee Poll ruled that there was no foul.
However, Poll had no hesitation in pointing to the spot seven minutes before the interval when Croatia defender Stjepan Tomas reached up and handled the ball in the goalmouth and Moore coolly slotted the penalty past Stipe Pletikosa.
Croatia, who needed to win to stay alive after losing 1-0 to world champions Brazil then drawing with Japan, looked to have sealed victory when Kovac scored but Kewell's instinctive reflexes from a goalmouth scramble saw them bow out.
''My team played the best they couldan but we failed to get the result we needed," said Croatia coach Zlatko Kranjcar.
''It was a dramatic and dynamic match and we missed our chances.
I want to congratulate Australia.'' The game ended in pandemonium after referee Poll showed Simunic a yellow card near the end and the defender, having been booked in the 62nd minute, began to walk to the touchline.
However, the English official seemed to forget about the earlier booking and Simunic stayed on the pitch until he got another yellow in stoppage time and was finally dismissed.
REUTERS VJ BST0657