Martin O'Neill's side had battered the Londoners throughout the first half but somehow found themselves two goals down only to mount a superb fightback.
Goals either side of half-time by Denilson and Abou Diaby for Arsenal were not a fair reflection of the game and, after Gareth Barry's penalty pulled a goal back, Knight smashed home a stoppage-time leveller to maintain Villa's three-point lead over the Gunners.
With captain Martin Laursen missing Gareth Barry was made skipper for Villa.
Arsene Wenger was without captain Cesc Fabregas through injury and striker Emmanuel Adebayor due to suspension. His injury problems worsened when Johan Djourou had to be replaced at late notice by Kolo Toure, having seemingly suffered a problem in the warm-up.
Villa began the day third in the Premier League, three points ahead of fifth-placed Arsenal thanks in part to a 2-0 victory away to the Gunners in November. However, Manchester United's victory at Stoke earlier in the day had lifted them above O'Neill's side.
Villa started well and nearly secured a sixth-minute lead when Steve Sidwell ran intelligently to send a header from Gareth Barry's corner crashing against the woodwork.
At the other end Knight was forced to make a decisive intervention with a sublime last-ditch tackle to deny Robin van Persie following Diaby's pass.
After 14 minutes England striker Gabriel Agbonlahor won a free-kick to the right of the penalty area and, though James Milner's shot was blocked after the set-piece was taken short, Luke Young's subsequent effort from distance had to be tipped over spectacularly by stand-in captain Manuel Almunia.
Villa again spurned a brilliant chance in the 20th minute.
Agbonlahor produced a burst of pace to go beyond William Gallas but saw his bending effort saved by Almunia and, as Sidwell ghosted in to convert the rebound, Gallas recovered to deflect his shot wide.
Almunia made another sublime save in the 34th minute when Milner beat the advancing Arsenal defence to slide in and connect with Luke Young's cross from deep, only for the Spaniard to get down quickly and smother the ball as it came off the post.
Toure was next in the book for fouling Agbonlahor. And from the resulting free-kick Curtis Davies found himself in space and sent a brilliant shot goalwards only to see it hit the bar.
Barry then saved Villa as he made a crucial tackle inside the box but somehow Arsenal hit them with a sucker punch in the 39th minute.
Denilson collected the ball near the halfway line and burst forward. When his pass to Eboue broke loose inside the box, the Brazilian kept sprinting forward and reached it first to fire home an unlikely opener.
Wenger then sent youngster Aaron Ramsey on for fellow midfielder Alex Song shortly before the break while Villa again came agonisingly close.
Nigel Reo-Coker's launched ball forward was met by Agbonlahor and with Almunia beaten, it needed Bacary Sagna's acrobatic clearance to keep their lead intact.
Somehow it was 2-0 barely four minutes into the second half as Diaby combined with Eboue before rifling home past Brad Friedel.
In the 55th minute Diaby forced his way into the area again and though his path was blocked, Van Persie collected the ball - only to sidefoot against the upright.
Arsenal were clearly buoyed by their good fortune and began to play with authority. Ramsey, celebrating his 18th birthday, was settling into the match with maturity.
But Villa got a lifeline in the 64th minute when referee Lee Mason awarded a penalty. Milner released Agbonlahor down the right with a simple ball and when Gallas made a clumsy challenge, the England striker went down.
Stand-in captain Barry stepped up to send Almunia the wrong way.
On the touchline, meanwhile, O'Neill and Wenger exchanged angry words and were spoken to by Mason.
The game was becoming scrappy as Villa looked to claw themselves level.
Their hopes of an equaliser looked slim but were boosted by the awarding of four minutes of added time and their prayers were soon answered.
Barry attempted to control a cross into the box and when the ball landed in the path of stand-in defender Zat Knight, the centre-half smashed home a late equaliser with a left-footed half-volley.
