Higgins looked a shadow of his former self as a plethora of unforced errors and missed pots allowed Hendry to surge 12-4 ahead, even though the seven-times champion was far from his best.
And after a break of 64 left Higgins needed snookers in the very first frame of the final session, the reigning title-holder soon conceded after a pair of failed snooker attempts which puts the legend within three victories of an amazing belated addition to his World honours.
"I wouldn't say two matches is a run, but I did win my qualifier as well so maybe that's three!" Hendry said.
"There is a long way to go but I am still in the tournament and I am very happy. Everything is a bonus for me at the moment.
"I have made a maximum, I have just beaten the defending champion and I've got Maguire next, so I can't wait.
"I am one match away from possibly being in a one-table situation at the Crucible again, which is amazing for me."
In the second session, Hendry edged a scrappy opener on the black in an edgy opening frame that saw more misses than the entire morning session. Hendry missed frame ball to let Higgins in but the reigning champ left himself a tricky black that wobbled in the jaws.
A break of 51 after a Higgins miss along the rail gave Hendry the second frame of the evening and the Higgins missed balls continued in frame 11. But with Hendry 15 ahead with 18 remaining, Higgins pulled out the last three colours including a double on the pink to snatch the frame. It proved to be the only highlight of a miserable evening.
A break of 40 proved sufficient to clinch the final frame before the interval but the break did not seem to do either player any good, both missing balls at the start of the 13th. But with Higgins's pot success rate down to a lowly 86 per cent, Hendry missed marginally fewer balls to edge another scrappy frame.
Yet more uncharacteristic Higgins errors and a break of 43 put Hendry further ahead and with the frame at his mercy and only needing the yellow, an incredible miscue handed Higgins a lifeline. But a missed pink let Hendry off the hook to close within two of victory. Hendry narrowly missed out on a century in the next to leave Higgins needing an unlikely nine frames on the trot to win the match.
Seven-times champion Stephen Hendry leads reigning champ John Higgins 5-3 in the World Championship last 16 in Sheffield.
Boasting 11 world titles between them, this best-of-25-frame encounter was expected to be something a bit special at the Crucible Theatre.
It was the Scottish duo's first meeting at a venue that has been so kind to them over the past three decades and their level of play did not disappoint.
Heavy scoring became the staple diet of an engrossing morning session with Hendry maintaining the magic touch that saw him devour Stuart Bingham 10-4 in the first round assisted by his third 147 maximum break at the tournament since his first visit in 1986.
Hendry - champion in 1990, 1992, 1993, 1994, 1995, 1996 and 1999 - seemed a bit nervy in losing the opening frame before a classy 52 handed Higgins a 2-0 lead.
Hendry's response was to recover in some style as runs of 81 and 69 saw him restore parity at 2-2.
A break of 124 in the fifth frame handed Higgins a 3-2 lead after Hendry had missed an early black, but it was a rare error in an otherwise majestic morning from Hendry.
A 93 enabled Hendry - ranked 23 in the world and forced to qualify for a tournament he has won seven times - to level at 3-3 before further classy runs of 123 and 67 saw the Crucible's most successful protagonist carry a two-frame lead into the evening session.
Four-times winner Higgins was unfortunate in the final frame of the session when he picked out a lovely pot on a red only to somehow fail to find position on the pink with all the balls spread.
Hendry slotted a pressure red to a middle bag before finishing off matters - with eight frames of genuine quality flying by in under two hours.