Goals from Braian Samudio and Miguel Almiron saw Paraguay upstage two-time champions Chile in their penultimate Group A fixture in Brasilia en route to the knockout round.
Samudio's maiden international goal gave Paraguay a 33rd-minute lead at Estadio Nacional de Brasilia, before Almiron converted a penalty 13 minutes into the second half.
Chile was aiming to maintain its unbeaten start under head coach Martin Lasarte having won three and drawn three of the six matches since his appointment, while trying to put some pressure on Group A leader Argentina.
But Chile struggled from the outset, recording just one tame shot on target throughout against Paraguay, with Eduardo Vargas and Ben Brereton bystanders in a forgettable outing.
Paraguay looked the more likely to score and forward Samudio broke the deadlock just past the half-hour mark – the 25-year-old rising highest to beat two defenders as his thumping header from Almiron's corner beat Claudio Bravo.
Carlos Gonzalez went close to doubling Paraguay's lead four minutes before half-time, however, his header in an unmarked situation went wide of the post in a big let-off for Bravo and Chile.
Paraguay did not have to wait long for their second goal after Chile veteran Gary Medel was penalised for a foul on Gonzalez in the 55th minute, with Newcastle United's Almiron stepping up to score the spot-kick.
Arturo Vidal led passionate appeals for a Chile penalty amid calls for a handball against Paraguay with 14 minutes remaining, but their protests fell on deaf ears, even after a VAR review.
That was the closest Chile came to scoring, with La Roja offering next to nothing in attack on a frustrating evening.
The gloss was taken off Paraguay's victory after substitute Antonio Bareiro left the field crying uncontrollably on a stretcher following what appeared to be a serious knee injury.