The 2015 champions trailed the 2014 winners by one point at halftime but, aided in part by a yellow card, ran in five tries with some breathtaking rugby in the second half for a comfortable victory.
Centre Richard Buckman, winger Tevita Li, hooker Liam Coltman as well as replacement backs Rob Thompson, Daniel Lienert-Brown and Lima Sopoaga crossed for the hosts.
Replacement scrumhalf Jake Gordon scored twice for the Waratahs after the break to add to tries from fullback Israel Folau and hulking wing Taqele Naiyaravoro in the first half.
As so many times this season, though, the Waratahs were punished for their indiscipline, with lock Dean Mumm despatched for a match-turning spell in the sin-bin for a tip tackle on Elliot Dixon in the 45th minute.
“I think we got momentum from there... but it was a tough game,” said Highlanders skipper Ben Smith, whose bright performance on his return from an ankle injury was good news for the All Blacks.
“We knew they were going to want to come here and really test us, we had to endure that intensity early on because we knew there might be chances later on.”
Mumm’s indiscretion came at a crucial time for the Waratahs, who had bounced back from Buckman’s early score off a charged down kick to take the lead with tries from fullback Folau and Naiyaravoro, who brushed Smith aside to cross on the stroke of halftime.
As soon as the Wallaby second-rower was sent from the field, though, the Highlanders kicked for touch and Coltman put his side back in front from a perfectly executed catch-and-drive.
Five minutes later and centre Malakai Fekitoa put his toe to the ball with a cross-kick that Li snaffled up to score, and when Thompson added a fourth after 63 minutes, the Highlanders were out of sight.
“Same old story for us this week,” said Waratahs skipper Michael Hooper.
“Discipline killed us against a solid team like the Highlanders. They took their opportunities really well. I thought their second half was fantastic.”