The visitors stunned high flying City with a goal after 11 minutes.
Both keeper David Martin and defender Jack Hobbs made a hash of their attempts to clear a Jabo Ibehre cross to allow Alex Nicholls to bundle the ball home at the far post.
City's response against Walsall's solid rearguard was restricted to long-range strikes from Steve Howard and Matt Oakley, neither of which troubled the keeper.
And the Saddlers served notice they weren't content to sit on their lead when on 32 minutes Chris Palmer powered in a 22-yard drive, but this time Martin was alert to the danger.
City, who were seeking to extend their unbeaten run to seven games, calmed their nerves with a leveller on 34 minutes when Max Gradel swung over a corner and midfielder Andy King soared at the far post to score with a thumping header.
Rejuvenated Leicester almost snatched the lead when Clayton Ince failed to hold on to Oakley's stinging drive, but he then recovered just in time to prevent Matty Fryatt snaffling the loose ball home.
Howard then headed a Chris Powell cross just over, before the City striker saw Stephen Roberts clear his looping header off the line.
But Walsall recaptured the lead on 47 minutes when from a Nicholls cross an unmarked Michael Ricketts had the time and space to guide a header inside Martin's near post.
Leicester struggled to make an impression on the visitors until they conjured up a second equaliser on 73 minutes when Aleksandar Tunchev rose unmarked at the near post to head home Lloyd Dyer's corner.
City swarmed forward in search of a late winner but Howard missed the best of a string of chances when, from a Fryatt cross, he miscued a close-range shot into the keeper's arms.