Maddison Keeney and Anabelle Smith were in the box seat to win gold with one dive left in the 3m synchro springboard, but a horrible mishap saw them finish in last place.
Luckily for Australia, compatriots Esther Qin and Georgia Sheehan went on to win gold, but their ecstasy was matched by agony for Keeney and Smith.
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Qin and Sheehan jumped from fourth to the top of the standings with their inward 2-1/2 somersaults last dive to clinch the gold with a total of 284.10 points.
England's Alicia Blagg and Katherine Torrance took silver with 276.90 points, with Malaysia's Mun Yee Leong and Nur Dhabitah Sabri getting the bronze with 264.90 points.
The competition, beset by windy conditions and technical difficulties in the outdoor pool, turned dramatically in the fifth and final round.
Keeney and Smith were leading but bombed out of contention with a botched forward 2-1/2 somersaults with two twists dive which earned them no points and left them in seventh and last position.
Chinese-born Glasgow Games springboard champion Qin and Sheehan seized their opportunity with a 71.10 scoring final dive to zoom to the top of the standings.
"Everyone's in the same boat, everyone's diving in the same conditions, it's just who can deal with them the best -- which today happened to be us, which is really exciting," Sheehan said.
"But our team managers had us prepped so well and getting us to use that home advantage to get the gold today."
A teary Keeney, who lost control of her dive and landed awkwardly, ending her team's medal chances, put on a brave face afterwards.
"It was all over the shop for everyone with all the delays and technical stuff going on which was stress we didn't need," said Keeney, the world 1m springboard champion.
"It was an interesting day for everyone, obviously I don't think anyone can say they dived well, but we've come out the other end. It was a tough day."
Blagg, who won the Commonwealth gold in the event at Glasgow with Rebecca Gallantree in 2014, said they were testing conditions for all the divers.
"We worked really hard and it was tough to see our big rivals dropping out. It was windy and cooler but you have to keep yourself together," Blagg said.
The Malaysian pair was thrilled to get an unexpected bronze medal.
"Actually from the start of this event I didn't think I could get a medal because it's a tough fight from Canada, Australia and England, so all I can do is just do my best," Sabri said.
"I didn't do well in the last dive but I still got a medal and I'm very happy for it."
The divers also had to contend with a breakdown in the electronic scoring system, which forced the judges to resort to manual scoring.