The cycling world expected one Briton to top the podium in Saltara but instead they were treated to the sight of another as youngster Dowsett of Movistar produced a pulsating ride to beat hot favourite Wiggins by 10 seconds over a demanding course.
The 39th of 200 riders to start the hilly race against the clock, Grand Tour debutant Dowsett completed what he described as "the hardest TT of my life" in a time of one hour, 16 minutes and 27 seconds.
Olympic time trial gold medallist Wiggins suffered an early puncture that required him to change his bike less than 20km into the test. But the Team Sky leader recovered well to post the second-best time to make it a British one-two on the podium.
Dowsett, the British national time trial champion and a former team-mate of Wiggins at Sky, left Sir Dave Brailsford's British team in the winter to join Movistar in a bid to improve his chances of riding a Grand Tour.
Victory in the time trial of his maiden Giro proves that the gamble has certainly paid off for the 24-year-old rider from Essex.
Italian favourite Nibali of Astana was quick out of the blocks and beat Dowsett's first intermediate split time by eight seconds at the 26km mark in Pesaro.
The hilly and winding course took its toll, however, and Nibali faded to post the fourth best time at the finish, 21 seconds behind Dowsett and seven seconds down on Estonian team-mate Tanel Kangert, who finished third.
Nibali's loss of just 11 seconds to Wiggins will feel like a victory for the new maglia rosa wearer, with many having predicted Wiggins would take at least two minutes from his main rivals.
A day after losing valuable time to his rivals after crashing on wet roads towards the finish of Friday's stage seven, Wiggins looked on course to blitz the field when he passed Italian veteran Danilo Di Luca (Vini Fantini) just 10 minutes into his ITT.
But the puncture that forced Wiggins to change bikes on the side of the road dented his chancs, and the 2012 Tour de France champion could only set the 13th best time at the first split, one minute behind Nibali.
Wiggins was still 59 seconds down on Dowsett - one of the rare haemophiliacs in the pro peloton - at the second check at Calcinelli, which came after 51km and just before a steep climb to the finish.
The 33-year-old kept his cool and showed he has climbing legs by powering up the slope - which peaked out at 13% - to reduce his deficit to just 10 seconds.
In the winner's enclosure, Dowsett let out a huge sigh of relief - although he still awaited the other top 20 riders on the overnight GC.
Australian veteran Cadel Evans (BMC) started well, faded in the middle, before pulling things together on the final climb to take the seventh best time, 39 seconds behind Dowsett.
Evans now rises to second on GC, 29 seconds behind race leader Nibali.
Robert Gesink is third on GC, at 1:15, after posting the 11th best time, 1:22 behind Dowsett.
Wiggins is fourth on GC, one second behind Gesink.
Michele Scarponi (Lampre) completes the top five after he rode to an impressive 10th place on Saturday, conceding just 43 seconds to time trial specialist Wiggins.
Defending champion Ryder Hesjedal (Garmin-Sharp) lost more than two minutes to Wiggins and Nibali after struggling to 18th place in the ITT. The Canadian is sixth on GC, 2:05 down on the summit.
Overnight race leader Benat Intxausti of Movistar started well but came home more than four minutes down on Dowsett to drop to 14th on GC.
The Giro d'Italia continues on Sunday with the mountainous 170km stage nine from Sansepolcro to Florence, which includes four categorised climbs before finishing on terrain that will be used in the 2013 World Championship Road Race in September.
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