Chasing 274, India's much-vaunted batting attack was bamboozled by Mendis' bag of tricks and the mystery spinner emerged as the wrecker-in-chief to bundle out India for 173 in just 39.3 overs.
Mendis' bowling figures read an impressive 8-1-13-6 and this was the first six-wicket haul in the Asia Cup history.
India's ploy of having an additional batsman did not pay dividend and only Virender Sehwag (60 off 36) and captain Mahendra Singh Dhoni (49) managed to salvage their reputation.
The Indian batsmen thus let down their bowling colleagues, who had earlier done a decent job by bowling out Sri Lanka for 273 in 49.5 overs, a total built around Sanath Jayasuriya's 125-run knock off just 114 balls.
Chaminda Vaas started the rot by removing Gautam Gambhir (6) in the fifth over before Mendis took over.
In his first over, Mendis foxed an onrushing Sehwag with a 'flicker' to get him stumped and two balls later, he flicked another through Yuvraj Singh's gates to castle him for a duck.
In his third over, Mendis disturbed Suresh Raina's (16) timbers before trapping Rohit Sharma (3) plumb in front four runs later. In the 32nd over again, he scalped Irfan Pathan and RP Singh off success deliveries to complete his six-wicket haul.
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Earlier, Jayasuriya looked unstoppable in a brilliant 125 runs from 114 balls that included nine fours and five sixes as he put on a face-saving 131 runs stand for the fifth wicket with Tillekaratne Dilshan who made 56.
India started well as Ishant Sharma rocked the top order with three wickets while RP Singh cleaned up the tail with as many as Sri Lanka struggled to make 57 in the last 10 overs.
Jayasuriya's 27th career hundred rescued Sri Lanka from a precarious 66 for four in 12 overs after India, in a brave decision, opted to field first.
RP Singh suffered badly in the 16th over when a blitz from Jayasuriya produced 26 runs from six balls taking him from 61 to 87.
He blasted Singh over the long off area for two sixes and then drove him for two fours over covers with the final ball being dispatched over mid-wicket for another six. His partnership with Dilshan, who made his fifty from 68 balls, came at a time when the Lankans were rattled by Sharma.
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India fought back through their spinners Pragyan Ojha, Rohit Sharma and Virender Sehwag and so tight were the Indians in their bowling and fielding that despite Jayasuriya's hundred, Sri Lanka were not able to get a boundary between the 22nd and 40th over.
