Off-spinner Lyon, bowling almost exclusively from around the wicket, grabbed four for 42 to rip the heart out of the middle order after the home team had won the toss and chosen to bat first in the most northerly test in Ashes history. Captain Alastair Cook top-scored after grinding his way to a painstaking 51 in 164 balls before he shouldered arms to an inswinger from the recalled Jackson Bird and was trapped lbw.
England, who have already clinched the Ashes after taking a 2-0 lead in the five-match series, made a sound, if slow, start to the first Ashes test to be staged in County Durham before Joe Root fell for 16 with the total on 34.
The much-maligned DRS worked well all day and the first indication of its new effectiveness came when Root was given out caught behind by Brad Haddin off Shane Watson after 'Hot Spot' technology showed he got the feintest of outside edges.
Jonathan Trott, renowned for his stodgy approach, joined Cook in the middle and the number three batsman raised the tempo with a streaky four through the slips and a neat clip through mid-wicket for three.
England crept to 57 for one at lunch, Cook managing just one four in the morning session, but Trott continued to play expansively after the interval and quickly overtook his skipper. Trott struck two fours in consecutive balls from paceman Peter Siddle and accelerated to 49 from 60 deliveries before being removed out of the blue by Lyon who cajoled him into offering a catch to short leg Usman Khawaja off bat and pad.
Kevin Pietersen came out and showed his intent from the start, lofting his first ball from Lyon into a gap at wide mid-on. Pietersen then hit fast bowler Ryan Harris for two successive fours before leapfrogging Michael Atherton to take fifth place on the list of England's most prolific run scorers.
Graham Gooch (8,900), Alec Stewart (8,463), David Gower (8,231) and Geoff Boycott (8,114) are now the only batsmen ahead of Pietersen (7,731) who almost immediately became Lyon's second victim of the innings when he edged a catch to Haddin on 26.
Pietersen fell with the score on 149 and Cook followed him four runs later, having just chalked up his third half-century of the series in a near four-hour vigil.
Paceman Bird, making his first appearance of the series after being preferred to Mitchell Starc, swung the ball late into the left-hander and Cook made his way back to the pavilion. The dismissals of Pietersen and Cook in double quick time just before tea put Australia firmly on top and they rammed home their superiority straight after the interval.
Ian Bell (six) charged down the pitch to Lyon and recklessly lofted the ball to mid-off where Harris took a tumbling catch. After a spell of mind-numbingly tedious cricket, Matt Prior (17) fell victim to the DRS. The umpire initially gave Prior not out when he was hit on the pad by Siddle but Australia chose to review the decision and it was overturned when 'Hawkeye' showed the ball would have struck the top of leg stump.
Praise for DRS
DRS was spot on again moments later when Jonny Bairstow was given out lbw for 14 after missing an attempted sweep off Lyon. Bairstow was initially given not out but the decision was changed when 'Hawkeye' showed the ball was going on to clip the top of off stump.
Harris picked up the next wicket when Stuart Broad, on three, mistimed a square cut and spooned a simple catch to David Warner at cover.
Graeme Swann (13) then hooked Harris straight to Lyon at deep square leg before James Anderson (16 not out) and Tim Bresnan (12 not out) took England through to stumps.
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