Odhran Murdock's goal from the penalty spot in extra-time proved the decisive score as Down were forced to dig remarkably deep to keep their Tailteann Cup title hopes alive.
Last year's beaten finalists were also mightily grateful to Ryan McEvoy who forced extra-time with a 77th-minute equalising point before winning the penalty that Murdock hit that crucial goal from.
Down had other heroes too on the day, like top scorer Pat Havern who burned brightest early on, while substitute Liam Kerr hit three important points in a thrilling and well matched encounter.
Down were aided by the 61st-minute straight red card shown to Sligo's Nathan Mullen, leaving Tony McEntee's side down to 14 for the remainder of the contest.
Defeat was tough on Sligo who also bowed out at the same stage in 2022, though they went down fighting and forced the tournament favourites to conjure perhaps their most courageous win yet under Conor Laverty.
Down will return to Croke Park on 13 July for an intriguing final clash with Laois, the same team they put 8-16 past at this stage of last year's competition.
Down supporters fancied their chances beforehand of back-to-back semi-final wins having returned to this stage with four wins on the trot but couldn't have imagined the epic that was in store.
The Ulster semi-finalists dispatched Limerick, London, Offaly and then Wicklow with a combined 46 points to spare.
Boss Laverty felt he got the right mix with a series of changes to the published lineup, drafting Finn McElroy, Paddy McCarthy, Ceilum Doherty and John McGovern into his team.
But they ran into a Sligo side on a similar upward curve. The Yeats County were deeply frustrated that they didn't beat Galway in the Connacht semi-finals so weren't going to be intimidated by Down.
Down clearly paid them plenty of respect too, detailing Peter Fegan to man mark Sligo danger man Niall Murphy and handing Pierce Laverty a similar job of tracking Sean Carrabine.
As it happened, both Murphy and Carrabine struck Sligo's first two scores, from frees, and were influential in open play too.
The Fegan-Murphy battle in particular was terrific with Murphy escaping his man for one first-half point from play, displaying his high skillset with a left-handed fisted point after a surging run.
Patrick O'Connor, fresh off a club switch to Dublin and Leinster champions Kilmacud Crokes, hit Sligo's goal in the 18th minute.
It was a good finish at the Hill 16 End but it was all about the run through by Cian Lally which set it up, the number 10 breaking through two defensive lines and evading five defenders in all before offloading to O'Connor.
Lee Deignan was Sligo's only addition to the published lineup, replacing Mikey Gordon, and when he pointed in the 22nd minute, Sligo led 1-05 to 0-04.
It was the biggest lead they would enjoy as Down finished out the half strongly with 0-04 to Sligo's 0-01 in the minutes before half-time.
Havern struck three of those points and it told a tale of the amount of possessions Havern enjoyed in the first-half that he finished with six points, hit two wides and dropped another shot short.
All of which left Sligo just about still ahead at half-time, leading by 1-06 to 0-08, but with it all still to play for in an entertaining back and forth.
Down moved ahead for the first time since the 10th minute when Liam Kerr, a half-time sub who struck a memorable hat-trick of goals in last year's semi-final win over Laois, pointed in the 38th minute, 0-10 to 1-06.
They doubled their advantage when McGovern pointed in the 45th minute, 0-0-12 to 1-07, but struggled for the next 10 minutes or so as Sligo moved up a gear.
Darragh Cummins, the excellent Carrabine and Deignan all scored points for Sligo before their second goal arrived through Mulligan in the 56th minute.
It was a lightning fast move through the centre involving the quick hands of Mullen, O'Connor and Paul McNamara, Mulligan eventually palming in at the back post.
The major re-established Sligo's four-point lead, 2-11 to 0-13, but Mullen's 61st minute dismissal, following a collision with Down's Oisin Savage who had to be taken off, left the north-westerners up against it.
Odhran Murdock slots home a penalty for Down, they go in front in extra-time
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Down capitalised and emptied themselves in a game that ran to 79 minutes due to the treatment required by Savage.
With captain Pierce Laverty leading them, and scoring twice, Down wiped out the deficit before going behind again to a Darragh Cummins Sligo point in the 76th minute.
McEvoy, just as he did against Westmeath in this year's league, hit a late equaliser with a terrific 77th minute point, forcing extra-time.
He had an opportunity for a winner from a 45 after a brilliant block by Eddie McGuinness on Down's Caolan Mooney but this time McEvoy couldn't convert.
The sides shared a point each in the first-half of extra-time and Sligo briefly took the lead through Murphy before McEvoy was hauled down for the penalty, allowing Murdock to convert the decisive winning goal in the 84th minute.
Down: John O'Hare; Ceilum Doherty; Ryan McEvoy (0-02); Peter Fegan; Shealan Johnston (0-01); Daniel Guinness (0-01); Pierce Laverty (0-02); Danny Magill (0-01); Pat Havern (0-07, 0-04f); Paddy McCarthy, Finn McElroy; Miceal Rooney (0-01); John McGovern (0-01); Odhran Murdock (1-00, 1-00 pen); Danny Magill.
Subs: Liam Kerr (0-03) for McElroy (h/t); Oisin Savage for Ryan Johnston (53'); Conor McCrickard for McGovern (58'); Ryan Magill for Danny Magill (65'); Eamonn Brown for Savage (66'); Caolan Mooney (0-01) for Havern (73'); Ryan Johnston for Shealan Johnston (75'); Danny Magill for Pat Havern (82'); Brown for Doherty (87').
Sligo: Aidan Devaney; Evan Lyons; Eddie McGuinness (0-01); Paul McNamara; Brian Cox; Darragh Cummins (0-02); Nathan Mullen (0-01); Paul Kilcoyne; Canice Mulligan (1-00); Cian Lally; Alan McLoughlin; Sean Carrabine (0-04, 0-02f); Lee Deignan (0-02); Patrick O'Connor (1-01); Niall Murphy (0-03, 0-02f).
Subs: Mark Walsh (0-01) for O'Connor (66'); Mikey Gordon for McNamara (69'); Eoghan Smith for McLoughlin (69'); Donal Conlon for Lally (76'); Luke Casserly for Deignan (e/t); David Quinn for Carrabine (76'); O'Connor for Kilcoyne (80'); Pat Spillane for Mulligan (86').
Referee: Derek O'Mahoney (Tipperary).
