A topsy-turvy encounter at the Royals' Hogwood Park training ground had seen Saints fall behind to Jake Cooper's scrambled opener midway through the first half.
But the visitors levelled it up five minutes later, as Jake Flannigan sent a low drive beyond Reading 'keeper Jonathan Henly to score his first since stepping up to the Development Squad in the summer.
Saints' other Jake – forward Sinclair – added the second just before the break, scoring from the penalty spot after Ryan Seager had been tripped.
Southampton looked good value for their lead but, after spurning a couple of good chances to wrap up the game, they were pegged back in controversial circumstances 12 minutes from time as Gozie Ugwu scored a spot-kick after substitute Andy Robinson had been dubiously penalised for a foul in the area.
And Ugwu would strike again in second-half injury time, shrugging off Matt Young before finishing smartly past Saints goalkeeper Chris Johns to bring a dramatic fixture to a close.
With a number of Development Squad players in consideration for tomorrow's First Team game at Barnsley in the Capital One Cup, coach Martin Hunter was forced to shuffle his pack.
He made five changes to the starting side that was beaten 4-1 at home by Chelsea 10 days earlier.
Northern Ireland Under-19 international Johns took over from Cody Cropper in goal, and Jason McCarthy stepped in for Jack Stephens at centre-back. Seager came in to replace Harrison Reed, while young duo Sam Gallagher and Josh Sims – who both played 90 minutes for the Under-18s on Saturday – replaced Lloyd Isgrove and Omar Rowe.
16-year-old Sims looked lively in the opening stages, going close to opening up the Royals defence before shifting the ball to Seager, who struck a fourth-minute effort onto the outside of Henly's left-hand post.
Just before the quarter-hour mark, stand-in skipper Jordan Turnbull surged over the half-way line and smartly played the ball to Seager, who in turn laid it off for Sinclair but the forward shot wide of the Reading goal.
Corby Moore then lashed a shot over Henly's crossbar, before Reading captain Jake Taylor went close with a half-volley that span just beyond the head of striker Ugwu and ended up going inches wide of the far post.
That seemed to spur the home side on, with Dominic Samuel slotting an effort just wide with Johns wrong-footed moments before the breakthrough arrived on 22 minutes.
A corner from the left picked out the head of Ugwu, who was denied by an excellent point-blank save from Johns only for defender COOPER to bundle home on the rebound.
The Royals might well have scored an immediate second, but goalkeeper Johns was at his best to pull off a magnificent double save to deny Reading's front two of Ugwu and Samuel in quick succession.
Saints duly levelled matters soon afterwards, as some patient build-up play led to a set-piece being half-cleared as far as FLANNIGAN, who composed himself before driving beyond Henly from the edge of the box.
Reading winger Lawson D'Ath then stung Johns's palms with a fierce long-ranger that the Saints 'keeper gathered at the second time of asking.
The visiting side were handed the opportunity to go ahead when, on 37 minutes, some sublime skill by Seager saw him break into the Royals' area only to be hauled down by left-back Shane Griffin.
SINCLAIR, who scored a double at Liverpool on the opening day of the season, stepped up and made no mistake from the spot to give Southampton the lead going into the break.
HALF TIME: READING U21S 1-2 SOUTHAMPTON U21S
Reading came flying out of the traps after the break, with Johns again having to be at his best to save from opposition skipper Taylor three minutes into the second half.
Soon afterwards, Seager and Gallagher – a partnership so prolific for the Under-18s last season – combined well as the former played in the latter, but the Scotland Under-19s striker lashed his shot off target.
There was a big chance for Reading on the hour mark as D'Ath crossed excellently from the left to pick out Samuel, but the unmarked striker got his header all wrong and sent it wide of the back post.
Soon afterwards, Hunter took off Sims after an impressive Development Squad debut, bringing midfielder Robinson on for his first appearance in some time after a long injury lay-off.
The substitute almost had an immediate – if somewhat unwitting – impact. Matthew Partridge's attempted long ball span off the Saints midfielder and set Gallagher free but, after rounding Henly, the striker's weak effort was back-heeled off the line by defender Cooper.
Johns came to Saints' rescue again on 75 minutes, saving from Tariqe Fosu-Henry after the Reading substitute had robbed the ball from Southampton left-back Matt Targett.
But Saints' hopes of securing a second Barclays U21 Premier League victory suffered a blow on 78 minutes as referee Gary Jerden bizarrely ruled that Robinson had brought down Taylor when it appeared there had been minimal contact between the pair.
Striker UGWU, a threat throughout, duly sent his spot-kick just beyond Johns's grasp to make the score 2-2 with eleven minutes left to play.
The frontman was close to scoring a second in as many minutes soon afterwards, stealing the ball from Turnbull and running clear on goal only for Johns to pull off yet another excellent save.
Saints centre-back McCarthy went close to restoring the visitors' lead on 83 minutes when he got on the end of Moore's inswinging corner, but Henly saved well.
Instead, with the game looking like it was heading towards a draw, it was Reading who scored a late winner.
Right-back Young attempted the shepherd the ball out of play but he was pursued by UGWU, who snatched possession and burst into the box before slotting confidently past Johns to wrap things up for the Royals.
FULL TIME: READING U21S 3-2 SOUTHAMPTON U21S
"We started the game off a bit cagily," Hunter assessed to Saints Player
at full time. "They got an early goal, which came from another error – I'm not going to hide from that.
"We've then gone into a much better mode of attacking play and scored two good goals, with Ryan doing particularly well for the penalty.
"In the second half they had a surge of impetus early doors, but then Sam had two excellent chances but he unfortunately missed both of them. That is very costly, especially in this type of football.
"I've seen [the penalty] again and it's an absolutely diabolical decision," he continued, "and the third goal was shambolic to say the least.
"This sorts out the boys that are going to play for our First Team and those that are not.
"Bearing in mind Josh and Sam played 90 minutes on Saturday, both equipped themselves well. I thought both of the Jakes were outstanding today, too.
"There's no blame attached to Andy," he added of substitute Robinson's part in conceding the spot-kick from which Reading equalised.
"I'm delighted he's been able to come on and play for 30 minutes. He's worked his socks off and hopefully he'll now get fitter and fitter."
Reading U21s: Jonathan Henly, Sean Long, Matthew Partridge (Pierce Sweeney 83), Jake Cooper, Shane Griffin, Lawson D'Ath, Aaron Tshibola (Tariqe Fosu-Henry 67), Jake Taylor (c), Aaron Kuhl, Gozie Ugwu, Dominic Samuel. Unused substitutes: Stuart Moore (GK), Jack Stacey, Liam Kelly.
Goals: Cooper (22), Ugwu (penalty 79, 90+2)
Southampton U21s: Chris Johns, Matt Young, Jason McCarthy, Jordan Turnbull (c), Matt Targett, Corby Moore, Jake Flannigan, Ryan Seager, Josh Sims (Andy Robinson 61), Jake Sinclair, Sam Gallagaher. Unused substitutes: Cody Cropper (GK), Fraser Colmer, Jamal Branker, Bevis Mugabi.
Goals: Flannigan (27), Sinclair (penalty 38)
Referee: Gary Jerden