After defeat in Perth which levelled the series at 1-1, England fans could have been forgiven for thinking it was the start of a collapse rather than a blip, but from the toss in Melbourne, the tourists always had control of the Fourth Test.
In bowler friendly conditions, Shane Watson was dropped twice by Paul Collingwood and Kevin Pietersen off the bowling of James Anderson, before Chris Tremlett dismissed him for just five.
And it didn't get any better for the Aussies, as Michael Clarke top-scored with 20. Even Michael Hussey (8) couldn't get them out of this hole, as the home side were dismissed for just 98.
The score was their second lowest total at the MCG and 84,345 came out to watch the Boxing Day Test Match.
The England bowlers took advantage of the conditions as Anderson took 4-44, Tremlett 4-26 and Tim Bresnan, who started in place of Steven Finn, 2-25.
By the end of day one, England had reached 157-0 on a more batter friendly track and Australia needed a miracle to escape the match still level in the series.
They did fight back a bit, reducing England to 286-5 but Jonathan Trott (168, not out) and Matt Prior (85) guided England to 513. Andrew Strauss (69), Alastair Cook (82) and Pietersen (51) all chipped in.
The pick of the Australian bowlers was local boy Peter Siddle with 6-75, Ben Hilfenhaus ended with 2-83 and Mitchell Johnson, who had been brilliant in Perth, was back to his unpredictable self with 2-134.
Ryan Harris (0-91) fractured his ankle while running up to bowl, meaning he couldn't bat and will miss around four months due to surgery. Watson (0-34), Steven Smith (0-71) and Clarke (0-13) all tried in vain to take English wickets.
Batting second Australia did fight back, Watson (54) again making a half-century before being dismissed and at 99-1 it looked as if England could be made to put in the overs but more disciplined bowling left Australia 169/6 at the end of day three.
Opener Phil Hughes made just 23 to go with his first innings 16, Ricky Ponting was out for 20, Clarke 13, Smith a respectable 38 and Hussey, so on-form before this match, was sent back without scoring.
In an MCG packed full of England supporters and with only a few hardcore Australian fans left, it took the tourists around 90 minutes to retain the Ashes and go 2-1 up in the series.
Brad Haddin (55, not out) and Siddle (40) were the main resistance but it was only a matter of time and when Hilfenhaus was caught off the bowling of Bresnan, the win by an innings and 157 runs was sealed.
Bresnan returned 4-50, Anderson 1-71, Tremlett 1-71 and Graeme Swann 2-59.
It all means England have retained the Ashes in Australia for the first time in 24 years, with the Sydney Test Match still to play because they already hold the urn.
It is the first time in history Australia have lost two home tests by an innings and it was their heaviest home defeat in 98 years.
England will try to win the series outright with a win or draw in Sydney, while Australia could still draw the series if they win the final Test Match starting on January 3, 2011.
Both sides could make changes, with Steven Finn possibly coming back into the team, while Harris will miss out and Ponting could miss out due to injury.