Birmingham had the benefit of scoring the first goal, which came in the 15th minute and Royals goalkeeper Marcus Hahnemann must take some of the blame.
Reading cleared a Birmingham corner but the ball eventually ran out to Keith Fahey and from 23 yards he fired a shot goalwards. The ball raced through a crowd of players and when it emerged on the other side it seemed to catch Hahnemann unawares.
The American keeper was slow to go down and the ball skipped past him into the net.
It looked all over for Reading on the hour as Kevin Phillips beat the offside trap to slide the ball just inside Hahnemann's post for a second Birmingham goal, but the Royals responded inside a minute.
Dave Kitson won the ball inside the Birmingham penalty area and slid it back to Marek Matejovsky. The Czech midfielder tricked his way past one defender before firing low into the net to lift the spirits of the crowd and give Reading hope.
That goal really sparked the Reading fans in the sell-out crowd to raise the volume. Reading players were literally spilling blood in the cause.
Stephen Hunt was playing with a bandage round his head after getting a nasty cut above his eye and Kevin Doyle was treated for a cut head. Birmingham had three players booked as they battled to keep Reading at bay.
Birmingham also had to suffer six minutes of injury time as referee Howard Webb took full note of time-wasting and stoppages for injury.
Reading had their chances but seemed incapable of taking them. The clearest came when a cross from the right flashed right across the face of Birmingham's goals with all the Reading players, Shane Long in particular, just watching as it passed by.
Five minutes from time Birmingham almost grabbed a third when substitute Garry O'Connor shot against the Reading upright.
Defeat meant Reading had failed to win any of their last eight home games and ultimately that's what cost them automatic promotion.