The game is delicately poised after the tourists reached 4-115 at tea on Saturday at the MCG, a lead of 166 runs.
Kevin Pietersen, one of the top four runscorers in England's history, is looking to add to his first-innings half-century and is unbeaten on 14 with Ben Stokes on 13.
Ahead by 51 on the first innings, England were in a strong position to push on to set Australia a target of over 300 on a two-paced pitch.
However after an opening stand of 65, England lost 4-22 including three wickets in six balls.
Alastair Cook was trapped lbw by Mitchell Johnson for 51.
Joe Root made 15 despite being given out caught behind for a duck.
Root called for a review of umpire Aleem Dar's decision and TV umpire Billy Bowden sided with England, overturning Dar's call after finding a lack of evidence of an edge.
Opener Michael Carberry (12 off 81 balls) was lbw to Peter Siddle at 2-86 in the 28th over before Johnson claimed two wickets as a fielder in the next over, bowled by spinner Nathan Lyon.
Johnson threw down the stumps at the bowler's end to run out Root and two deliveries later Ian Bell was caught by Johnson at mid off for a golden duck.
Bell hit three centuries in the 2013 Ashes series in the UK but has struggled in Australia, scoring 217 at an average of 31.
Former England captain Michael Vaughan said on Twitter: "Has to be one of the worst shots ever."
Pietersen was almost run out on nine, but Siddle's throw missed the stumps at the striker's end.
Australia's Shane Watson has bowled four overs despite a sore groin and was in some discomfort, placing him in doubt for the Sydney Test on January 3.
The home side made 204 in reply to England's first innings of 255.
Australia had resumed on 9-164 on Saturday.
Wicketkeeper/batsman Brad Haddin top-scored with a gusty knock of 65 and added 40 valuable runs for the last wicket with Nathan Lyon who was unbeaten on 18.
Haddin notched his fourth half-century of the series, alongside his hundred in the second Test in Adelaide.
Australia lead the five-match series 3-0 and the home side have already regained the Ashes.
ENGLAND FIRST INNINGS 255
AUSTRALIA FIRST INNINGS 204
ENGLAND SECOND INNINGS
A COOK lbw Johnson 51 (64)
M CARBERRY lbw Siddle 12 (81)
J ROOT run out (Johnson) 15 (24)
K PIETERSEN not out 14 (32)
I BELL c Johnson b Lyon 0 (1)
B STOKES not out 13 (44)
Sundries (4b 6lb) 10
Four wickets for 115
Fall: 65 (Cook), 86 (Carberry), 86 (Root), 87 (Bell).
Bowling: R Harris 8-1-27-0, M Johnson 10-3-19-1, N Lyon 9-1-26-1, P Siddle 10-5-20-1, S Watson 4-2-13-0.
Batting time: 187 mins. Overs: 41.
Umpires: Aleem Dar (PAK), Kumar Dharmasena (SRL).