Peter Thorne and Cameron Jerome grabbed the goals, both in the first half, to send the Bluebirds three points clear of the drop with two games remaining.
The defeat means that the Royals' Premiership dreams are again in the balance as they dropped out of the play-off places behind West Ham.
But Cardiff will not care one bit as they leaped to 17th place - their highest position in the Championship since August.
Both of City's goals came courtesy of the dead ball precision of Neal Ardley whose delivery was matched by the deadly finishing of Thorne and Jerome.
The 32-year-old has already tasted the bitterness of relegation with Wimbledon from the Premiership in 2000 and set about crafting a victory that would see Cardiff survive their relegation battle.
Ardley's pinpoint free-kick from the right hand side drifted over the Reading defence to find Thorne unmarked on the edge of the box.
City's top marksman needed no second invitation to pick his spot and smashed in his 12th goal of the season beyond the helpless Marcus Hahnemann after only 12 minutes.
The goal settled home nerves but only served to unsettle the Reading defence despite the presence of 43-times capped ex-England defender Martin Keown.
Thorne came close to grabbing his second only to see his looping shot cleared off the line by Nicky Shorey after half an hour.
Ardley's subsequent corner caused all sorts of problems in the Reading box. Keown managed to block an effort from James Collins only for the ball to fall invitingly to Jerome who drove the ball between Hahnemann's legs for the Bluebirds' second.
Thorne almost extended that lead twice early in the second half as Cardiff took control. The in-form striker glanced a header from Ardley's cross over the bar before smashing a right-foot drive onto the post minutes later.
Half-time replacement Les Ferdinand came closest to breaking Reading's duck when he hit the bar late on but it was too little to stop Cardiff giving their survival hopes a massive boost.