Careless cricket from India saw them end the second day at 180-4 after a promising start from the openers Akash Chopra and Virender Sehwag of 66 runs.
India lost Sachin Tendulkar for one caught behind of a careless shot while Sourav Ganguly was run out after a mix-up with his deputy Rahul Dravid.
Three wickets fell with the addition of four runs as India faced the daunting task of avoiding the follow-on.
Dravid and Laxman repaired the innings with a 95-run stand for the fifth wicket. Laxman carved a half-century under pressure while Dravid gave him ample support with a rock-solid 43.
Earlier in the day, Anil Kumble claimed his maiden five-wicket haul -with three wickets in one over --- as Australia were bowled out for 556 with Ricky Ponting top scoring with a career-best 242.
