Two goals in the last six minutes from the Diamonds' Lee Tomlin and Mark Byrne inflicted the Town's second home defeat of the season and first in six matches.
With new manager Richard Money and chief scout Gary Brabin watching from the stands it was a goal from Tomlin on 84 minutes that put the visitors in front.
With the game seemingly drifting to a goalless draw, captain Kevin Nicholls' slip on the half-way line was capitalised on by Tomlin ran on and beat Mark Tyler with a cool, low finish.
Then, in the fourth minute of additional time, the Diamonds' substitute Byrne collected an inch-perfect pass from Max Porter to float the visitors' second goal over the advancing Tyler to make sure all three points were heading back to Northamptonshire.
It was a largely frustrating afternoon for the Hatters with Tom Craddock denied by the post as early as the sixth minute after being found by Nicholls.
The Town striker then had two goals ruled out for offside in the opening 45 minutes, firstly having a superbly taken half-volley chalked off on 16 minutes and then in the final minute of the first-half when he tapped home from close range after Ed Asafu-Adjaye's low shot was well-saved by former Luton goalkeeper Nathan Abbey.
But as the second half wore on the Hatters seemed to run out of ideas and they were punished with six minutes to go when Tomlin hit them with the sucker punch before the late second rubbed further salt into the wound.
For minute-by-minute analysis see below:
Result from Kenilworth Road
Luton Town 0
Rushden & Diamonds 2 (Tomlin 84, Byrne 90)
FULL-TIME Luton Town 0-2 Rushden & Diamonds. It's all over here and the Town have fallen to their second home defeat of the campaign. We'll have all the action and reaction when we have it.
90 mins +4 GOAL Hatters 0-2 RUSHDEN & DIAMONDS - It's 2-0 and game over now. Max Porter lifts a pass into the path of Byrne who, seeing Tyler race off his line, clips the ball way over the head of the goalkeeper to make it two in the dying seconds.
90 mins - It's almost over here at Kenilworth Road. The Hatters have struggled in the second half. Not much time remains to find a late equaliser.
89 mins - A chance for a late leveller goes begging for the Town. Gnakpa sends a deep curling crossing to the back-post which Craddock heads back across goal but Burgess tries a diving header of his own that drops wide of the post.
87 mins - There's not much time left and Rushden - who happy with a point 10 minutes ago - now desperate to hang onto three points.
84 mins Hatters 0-1 RUSHEN & DIAMONDS - Heartbreak for the Hatters as Nicholls slips as the worst possible time inside the circle after taking a pass from Asafu-Adjaye. Tomlin capitalises, continues his run into the box, holds of Nicholls and slots home a slick finish past Tyler. Oh dear.
83 mins - Time is running out for Town and as it remains goalless can we snatch something.
78 mins - Close shave from the Town as Rushden sense they can get more than just one point. Substitute Mark Byrne hits a firm effort from 20 yards that Tyler does well to parry. As the ball drops loose Pilkington hacks the danger away but only as far as Tomlin who thumps a well-hit effort wide of the target.
76 mins - Gnakpa's already into the thick of things and he calls Abbey into his first meaningful action of the second half when diving to his left to keep out the Frenchman's low drive from the edge of the area. From the following corner Osano comes close to scoring an own goal with a header and from the flag-kick that follows Abbey has to punch away through a crowd of bodies.
75 mins Make that the third and final change as White goes off and is replaced by Freddie Murray.
71 mins The second change from Neilson as Claude Gnakpa replaces Jarvis. Nicholls and Newton now occupy the centre of midfield with Gnakpa on the right-wing.
69 mins - There 's activity on the Town bench as Diamonds go close a corner. Farrell heads over at the near-post following Tomlin's flag-kick.
67 mins - Still very quiet, still very frustrating here...
63 mins - It's the third 7,000-plus crowd of the season at Kenilworth Road with 7,101 inside the ground that includes 402 cheering from the Oak Road end for Diamonds.
61 mins First change of the afternoon and it's from Neilson. Hall is withdrawn and Andy Burgess returns comes on to make an appearance against his former club. He takes up a place on the left-wing.
60 mins - More direct play from O'Connor from the Diamonds. He drives at the heart of the Town defence and unleashes a low shot that is saved by Tyler.
57 mins - A great ball from Gallen gets a Town move going but as the ball finds Howells down the left he finds Jarvis but he screws a shot high and wide of Abbey's goal from outside the box.
56 mins - Tomlins has another effort for the visitors from range but after the ball bounces back for Tyler to take a goal-kick Cousins heads the ball away unnecessarily and is booked for his time-wasting antics by referee Bennett.
51 mins - It's still very quiet here at Kenilworth Road and for that matter, it's still 0-0. Rushden are playing better than they were in the first half but they already seem to be happy with a point.
47 mins - An early chance from the visitors as Farrell feeds O'Connor who tries his luck from the edge of the area with a shot that is comfortable for Tyler. Seconds later Tomlin, cutting in from the left, attempts an ambitious effort that goes well wide of the target.
46 mins - We're underway again in the second half as Rushden kick-off. Can the Town get all three points?
HALF-TIME Luton Town 0-0 Rushden & Diamonds. We've had two minutes of injury time at the end of the first 45 and referee Bennett calls time on proceedings for the half-time break. He then goes off to a resounding chorus of boos from the Kenilworth Road faithful. Abbey, the Diamonds hero so far, is the last to leave the pitch. We'll be back for the second half in 15 minutes. See you then.
45 mins - And then there's chance. The ball falls kindly for Asafu-Adjaye on the edge of the area who hits a super daisycutter of a shot that looks destined for the bottom right corner until Abbey sticks out a glove to keep the ball out. Craddock is the first to react and sticks it in the back of the net but the linesman's ruled a second goal for the striker out for offside. Unlucky.
42 mins - The Hatters are having plenty of the ball but there isn't much to report on in all honesty...
40 mins - More time-wasting from the visitors and Abbey receives a lecture from referee Bennett which frustrates the Hatters fans even more. Still 0-0.
37 mins - Two great chances in the space of 30 seconds as firstly White sees a header kicked-off the line by Terry from Nicholls' right-wing corner and then Craddock tests Abbey with a low shot from 20 yards that the goalkeeper does well to push away at full-stretch. Seconds later Craddock wins a corner and then is booked as he tries to net using his hand from the resulting flag-kick.
31 mins - An intelligent through-ball by Newton tries to find Craddock but just before the striker can bear down on goal again a last-ditch foot-in by Cousins saves the day for the Diamonds.
26 mins - Great chance for Rushden but it remains goalless. They break on the counter down the right flank with Neil Cousins who picks out Tomlin at the back-post. The ball is just too high for Asafu-Adjaye to get a head to and as the ball drops to the feet of Tomlin he has plenty of time to measure up where he wants to stick it past Tyler. Fortunately he goes for power and blasts a shot high and wide of Tyler's left-hand post into the Rushden fans behind the goal.
24 mins - Rushden have won four corners so far and are frustrating the home crowd with the time they are taking to take them. From their fourth flag-kick right-back Curtis Osano beats Craddock to the ball but fluffs his lines with an awful left-footed effort that ends up about 15 yards wide of the target.
21 mins - Again back come the Diamonds and Paul Terry - on trial with the Town in pre-season - sees a header from six yards plucked out of the air by Tyler.
20 mins - Abbey was probably best remembered for some not so memorable goalkeeping during his time at Kenilworth Road and he was nearly left red-faced when rushing out his goal to prevent Craddock scampering through. Craddock hit a shot straight at his body and the ball falls to Gallen 25 yards out and hits a shot goalward with Abbey in no man's land but the ball falls agonisingly over the crossbar.
18 mins - Back come Rushden and more direct wing-play from O'Connor sees the the Diamonds' midfielder chip a cross to the back post where Tomlin is waiting for a chance to tap home the opener but Asafu-Adjaye gets above him to clear the danger superbly for a corner. From the resulting corner Tyler misses the first cross but as the ball breaks Craig Farrell sends a shot back goalwards that his saved by the Town keeper.
16 mins - Great bit of play but how is Craddock's luck? Newton plays in Gallen who feeds Craddock but although the striker is offside he doesn't know that as he turns and whacks a great shot past Abbey that goes over the line via the crossbar. Such a shame it was offside.
12 mins - The Hatters are certaintly on top now and Craddock is denied this time by a sprawling parry by Abbey to beat the striker's fierce shot away after he'd been played in by Newton. With the ball still loose Newton's follow-up is blocked and danger is eventually cleared by the visitors.
11 mins - I'm sorry I'm going to have to mention this. Nico and Asafu-Adjaye combine to set Newton up and as the Rushden defence parts like the Red Sea and the winger let's fly. However he gets it all wrong and his left-foot strike goes out for a throw.
6 mins - It should be 1-0 the Town. Nicholls plays a defensive splitting pass into the path of Craddock who is one-v-one with Abbey. The former Luton number 1 elects to stay on his line when perhaps rushing off it to clear would have been a better choice. But what do I know? Craddock bears down on goal with all the time in the world and hits a shot that comes back off the right-hand post. Would you believe it.
6 mins - It's been a quiet start here but neat play from Nicholls, Hall, Craddock and Newton wins a corner and after the captain's resulting flag-kick, Newton's cross eludes everyone and falls to George Pilkington whose low shot on the turn is comfortable for Abbey diving down to his right.
2 mins - Bright start from the visitors as Aaron O'Connor and Lee Tomlin show close control and good technique to get the better of Asafu-Adjaye and White but the move breaks down and the danger is over.
1 min We're off and running with the Hatters kicking towards the Kenny Road end. Diamonds are sporting their all yellow away strip so another one of the nice colour clashes. Nice.
14:59 - The teams change ends and it will be the Town to kick-off. Former Town stopper Abbey gets a nice round of applause from the Kenilworth Road end. We're almost all set. COYH!
14:53 - Kenilworth Road is filling up nicely and new boys Richard Money and Gary Brabin are given a warm round of applause as they are introduced to the crowd by managing director Gary Sweet. A great reception.
Teams news - Alan Neilson is in change for the visit for Rushden & Diamonds with new boss Richard Money overseeing things from the directors' box. Assistant manager Neilson, who is protecting an unbeaten record in charge of the first team, makes four changes to the side that beat Grays Athletic in the fourth qualifying round of the FA Cup last weekend.
In come Ed Asafu-Adjaye, captain Kevin Nicholls, Tom Craddock and Rossi Jarvis - who returns from suspension. Andy Burgess drops to the bench against his former side while Freddie Murray returns to the squad after his was ineligable to face his parent club last Saturday.
Rushden meanwhile have former Luton goalkeeper Nathan Abbey between the sticks. Manager Justin Edinburgh also names a former Town trainee on the bench in the form of striker Cliff Akurang.
Luton Town: Tyler, Asafu-Adjaye, White, Pilkington, Newton, Nicholls, Hall, Howells, Jarvis, Gallen.
Substitutes: Gore, Burgess, Charles, Gnakpa, Murray.
Rushden & Diamonds: Abbey, Osano, Robinson, Porter, Stuart, O'Connor, Farrell, Tomlin, Cousins, Corcoran, Terry.
Substitutes: Roberts, Pattison, Byrne, Akurang, Mills.
Good afternoon all supporters to lutontown.co.uk to our text updates service as the Hatters are back in action against Rushden & Diamonds in the Blue Square Premier.
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