Bobby Williamson’s youthful side had to come from behind, with a Grant Brebner penalty cancelling out Stanislav Varga’s header.
The starting line-ups had an unbalanced look to them with Celtic fielding established internationals and the home side pitching in teenagers. Hibs centre-half Jonathan Baillie was even a debutant, with the 18-year-old handed the task of snuffing out Henrik Larsson and Chris Sutton.
But what Hibs lacked in experience they made up for in exuberance and in the end they were deserved winners. Larsson was allowed to head an Alan Thompson free-kick inches wide in the 13th minute but Hibs’ reply was to go even closer, with Derek Riordan denied only by the woodwork.
Riordan had fooled John Kennedy into thinking a cross from the left was coming and instead cut inside to send a swirling ball beyond Robert Douglas which bounced back off the top of the post.
Scott Brown was first to the rebound but Varga was there to block.
Shaun Maloney replaced Sutton up front in the 50th minute and six minutes later his side were in front.
Thomson conceded a corner which Liam Miller swung in for Varga to beat goalkeeper Daniel Andersson in the air and although the man who had
conceded the flag-kick tried to stop the ball from crossing the line he was unable to do so.
Hibernian were back on level terms by the 64th minute when Kennedy was adjudged to have used a hand in the box under pressure from Tom McManus.
Brebner made no mistake with the spot-kick, blasting past Douglas, who had at least guessed correctly.
Kennedy almost made amends at the other end by meeting a Thompson free-kick, for a yellow-card offence on Ross Wallace by Steven Whittaker, on the volley but it was a difficult chance at the back post and he could not hit the target.
Both sides made changes, with Stephen Dobbie replacing McManus and Lambert making way for Craig Beattie.
But it was Hibs who had the most zest and Thomson served up a memorable winner with eight minutes remaining. The midfielder lashed home from the edge of the box with the outside of his left boot to condemn Celtic to their first domestic defeat of the season.
HIBERNIAN: Andersson, Baillie, Smith, Doumbe, Whittaker, McManus (Dobbie 77), Brown, Brebner, Thomson, Riordan, O’Connor.
CELTIC: Douglas, Varga, Balde, Kennedy, Crainey, Miller, Lambert (Beattie 81), Thompson, Wallace, Larsson, Sutton (Maloney 50).
Referee: J Rowbotham.