Brazilian striker Mario Jardel celebrating his recall to the Bolton side by giving them the lead on four minutes when he rose to head home a corner from Youri Djorkaeff.
The home side then responded by testing veteran keeper Kevin Poole in the Bolton goal but the 40-year old was equal to both a piledriver from John Arne Riise and the follow up from Vladimir Smicer. Liverpool winger Smicer then set up Emile Heskey but the England striker could not keep his shot down to beat former Leicester City team mate Poole.
Wanderers had played with the same confidence which had given them a win over the Reds Merseyside rivals Everton over the weekend in the Premiership despite making seven changes to the starting line up.
Shortly before half time Bolton could have increased their lead but Henrik Pedersen could not get enough power on his header from Ibrahim Ba's cross to trouble Jerzy Dudek in the Liverpool goal.
Liverpool as expected came out in the second half more spirited and the away side had to defend in numbers to try and soak up some of the pressure from the home side. Jamaican international Ricardo Gardner saved Bolton on 52 minutes when he made a timely interception to deny Reds striker El-Hadji Diouf and then Spaniard Ivan Campo cleared the resulting corner off the line in what was a good spell of dominence from the home side.
Gerard Houllier introduced Harry Kewell and Florent Sinama Pongolle in place of El Hadji Diouf and Anthony Le Tallec in a bid to get a further hold on the game. John Arne Riise's left sided cross then skimmed Poole's crossbar and the warning signs where there that the holders would get back into the game and on 66 minutes they acheived that breakthrough when Danny Murphy rose at the far post to head the ball home from a cross by Salif Diao.
Bolton made changes and brought on Kevin Davies for the tiring Mario Jardel who did not seem happy with the Trotters manager Sam Allardyce at being substituted but the introduction of the former Southampton man proved to spring the Lancashire side back into life.
On 76 minutes referee Mike Riley became the focus of Wanderers anger, just as he had done two years previously when sending off both Paul Warhurst and Dean Holdsworth in a game against Leicester City. This time he had ruled out what looked like a perfectly good goal by Youri Djorkaeff for handball and the Bolton argument was that the Frenchman had chested the ball past Dudek as opposed to using his hands however the official denied the goal much to the annoyance of the Wanderers boss Allardyce and his coaches Phil Brown and Neil McDonald.
Three minutes later justice prevailed when Bolton captain Jay-Jay Okocha fired a superb curling free kick past Dudek with only ten minutes remaining. The Nigerian who has been in sparkling form silenced the Anfield crowd but the home side wheren't quite finished.
Okocha then had another free kick for Bolton but this time Polish international Dudek was equal to the shot in the Liverpool goal, saving well to his right from the former Paris Saint Germain midfielder.
With only two minutes remaining Vladimir Smicer handed Liverpool a lifeline and looked to have took the game into extra time. Former French international Ibrahim Ba had given the ball away for Bolton, allowing the Czech midfielder to run on and place the ball past the despairing Poole.
However the game took a further twist when Bolton went up the other end of the field and where awarded a penalty after Salif Diao had tripped the Trotters substitute Kevin Davies and the referee Riley had no option but to award the visitors the spot kick which was duly dispatched off the post by the French veteran Djorkaeff to send Wanderers through to the Quarter Finals for the first time since the 1999-2000 season.