Lyon were asserting themselves well in the early stages of the match, frustrating City from having any sort of rhythm.
Aymeric Laporte almost broke the deadlock for Pep Guardiola’s charges in the 17th minute with a header at the back post, but unfortunately his effort came off the crossbar.
Maxwel Cornet gave the French side a shock lead in the 26th minute with a terrific strike across the face of goal into the top corner after the hosts failed to clear their lines at the back, 0-1.
The Citizens had a double blow two minutes before the break after Nabil Fekir gave the visitors a 0-2 lead fending off two defenders before firing a low shot into the bottom corner.
The hosts went into the break trailing 2-0 and needed inspiration with their coach Guardiola serving a one-match touchline ban up in the stands.
City were dominating possession ten minutes into the second stanza but they were yet to make dangerous attacks.
Memphis Depay almost sensationally got the third goal for Lyon on the hour-mark, bending a strike into the top corner but City goalkeeper Ederson had the slightest of touches to guide his effort off the post.
Bernardo Silva gave the hosts a lifeline in the 67th minute, making it 2-1 with a good finish from 10 yards following a cut-back from Leroy Sane.
The French outfit were being forced to drop deeper and deeper with 20 minutes remaining as the Citizens were throwing everything forward.
Lyon were occasionally threatening on counter-attacks in the last ten minutes as the match was in the balance, but they held on to claim a famous win in England.