The Hatters' five-match unbeaten run in Sky Bet League One came to a halt in the lunchtime kick-off as highly-fancied Barnsley won 3-2 at Oakwell.
James Collins scored in each half to take his recent run to four goals in as many matches - the first a penalty on the stroke of half-time to make it 2-1, with his second coming five minutes from time after the Tykes had restored their two-goal advantage.
As manager Nathan Jones conceded afterwards, the side relegated from the Championship last season were worthy of their victory, midfielder Brad Potts, former Hatter Cameron McGeehan and substitute Mamadou Thiam scoring their goals.
But the game could have changed on two big decisions, firstly when Collins put the ball in the net with Barnsley leading 1-0, only for a linesman's offside flag to incorrectly, as TV replays showed, rule it out.
Then, with the Town back in the game at 3-2 in the closing stages, substitute Danny Hylton - back after an injury lay-off stretching back to August 25th - was dragged to the ground by Liam Lindsay in the box, but referee Ross Joyce waved appeals for a second penalty away and the hosts, as impressive a side as we've come up against this season, took the points.
Jones made one change from last week's win over Scunthorpe, with Elliot Lee missing out through injury and James Justin coming into a reshuffled midfield in his place.
That meant goalkeeper James Shea was behind a back four of Jack Stacey, Matty Pearson, Sonny Bradley and Dan Potts, with captain Glen Rea anchoring the midfield alongside Pelly-Ruddock Mpanzu, Justin and Jorge Grant, and Harry Cornick and Collins up front.
Barnsley took the lead in the fifth minute when, seconds after Pearson had been penalised for a foul on home keeper Jack Walton from a first corner that swirled in the wind, Potts broke clear of a group of players midway inside the Town half and drove an effor past Shea from 20 yards.
The hosts were well on top in the early stages and almost doubled their lead when Dimitri Cavare fired into the side-netting on 13 minutes, with Bradley's sliding challenge deflecting it wide, before George Moncur shooting over from the resulting corner.
The chances kept coming for the Tykes, Jacob Brown heading over on 18 minutes before Moncur shot straight at Shea a minute later.
The Town grew into the game, however, and Walton was called into action in the 20th minute when Justin was played into the right edge of the area by Stacey, and his fierce cross-shot from a tight angle tipped over the bar by the home keeper.
The ball was in the back of the Barnsley net in the 21st minute when Walton couldn't hold a 25-yarder from Mpanzu, and Collins was there to follow up - a linesman's flag ruling it out for offside, incorrectly as TV replays showed the striker was level when the shot was hit.
Double punishment was dished out in the 26th minute when McGeehan arrived at the perfect time to meet Moncur's low cross with a side-foot finish into the bottom corner, to make it 2-0.
Town responded positively, Bradley's 29th-minute flicked header drifting just wide of the far post from Grant's free-kick, after Mpanzu fouled wide on the left.
Grant went closer still in the 41st minute when his free-kick from the left angle of the area beat the wall, but uunfortunately not the woodwork, as it clipped the outside of Walton's right post and went behind for a goal-kick.
Barnsley looked like finishing the half as they started, well on the front foot, with the ever dangerous Moncur crossing dangerously across the face of goal on 43 minutes, before fashioning space on the edge of the area to fire another good effort just wide with 45 minutes on the clock.
The Town were right back in it with two minutes of added time played, when Cornick was tripped by Ben Williams just inside the area on the right, and Collins stepped up to net from the spot.
With neither manager making a change at half-time, McGeehan had the first two attempts of the second period, the first a shot from 20 yards that was off target, before a far post header hit the bar and flew skywards, with Shea reacting well to push the dropping ball over the bar as Brown looked to pounce.
Jones made his first substitution in the 56th minute when Alan McCormack came on for Grant, slotting into midfield alongside Rea, with Mpanzu and Justin pushed further on to a form a three with Cornick just behind Collins as the point.
Shea was in the right place to drop on another shot from Brad Potts in the 69th minute when the Tykes midfielder got an effort away following a six-yard box scramble, shortly before Jones introduced Kazenga LuaLua for Cornick on 72 and Hylton for Rea seven minutes later.
The striker hadn't even had chance to have a touch before Tykes substitute Thiam fired a bullet into the top corner of Shea's net in the 80th minute to virtually kill the game off.
Bradley rose highest to meet a free-kick from Justin moments later, but his header was well wide of Walton's left post.
Then, with five minutes to go, the Town had a lifeline as LuaLua's deep cross from the left came back off the inside of the post and landed right in front of Collins, who gobbled up his second of the game by volleying in from close range.
Bar the lateb penalty shout for the foul on Hylton, however, that was as close as the Hatters came to taking something back to Bedfordshire, where Walsall are next up in a week's time at the Kenny.
TOWN: Shea, Stacey, Pearson, Bradley, Potts, Rea (Hylton 79), Mpanzu, Justin, Grant (McCormack 56), Cornick (LuaLua 72), Collins. Subs: Isted, Shinnie, Jarvis, Sheehan.
Goals: Collins (pen) 45+3, 85
Yellows: McCormack, LuaLua
BARNSLEY: Walton, Cavare, Pinnock (c), Lindsay, Williams (Pinillos 73), Potts, McGeehan, Mowatt, Moncur (Hedges 83), Brown, Bahre (Thiam 68). Subs: Kendrick, Bird, Jackson, Adeboyejo
Goals: Potts 5, McGeehan 26, Thiam 80
Yellows: Brown
REFEREE: Ross Joyce
ATT: 12,688 (807 away)