Bayern suffer first league defeat in 54 matches
Coach Pep Guardiola named a weakened team for the Bavarian derby and paid the price as Bayern were beaten for the first time in the German league since going down 2-1 at home to Bayer Leverkusen on October 28, 2012.
With one eye on Wednesday's Champions League clash at home to Manchester United, Guardiola started with three teenagers, giving Bundesliga debuts to wing-backs Ylli Sallahi and Mitchell Weiser while Pierre-Emile Hoejbjerg was named on the left wing.
The gamble backfired when Weiser lost possession to Augsburg's Daniel Baier who fed Sascha Moelders and the Augsburg striker blasted his shot past Bayern's goalkeeper Manuel Neuer with 31 minutes gone to claim the winning goal.
It was the third game in succession Bayern have fallen behind and Guardiola responded by bringing stars Mario Goetze, David Alaba and Thomas Mueller off the bench.
Left-back Alaba hit the post with 68 minutes gone as Bayern pushed in vain for the goal to keep alive hopes of becoming the first team to go through a Bundesliga campaign undefeated.
Having lost 4-2 at Borussia Dortmund in July's German Super Cup final and beaten 3-2 at home to Manchester City in the Champions League group stage last December, this was only Bayern's third defeat of the season since Guardiola took charge in June.
Bayern were already confirmed Bundesliga champions ten days ago when they wrapped up the title with a record seven games to spare.
With second-placed Borussia Dortmund at VfL Wolfsburg later on Saturday, Schalke 04 stayed third as they came from behind to claim a 1-1 draw at Werder Bremen.
Bremen took the lead when Argentina striker Franco di Santo took the lead after 15 minutes before Schalke's teenager Leon Goretzka levelled for the Royal Blues on 33 minutes.
At the other end of the table, VfB Stuttgart improved their chances of avoiding relegation with a 1-0 win at home to Freiburg to escape the bottom three with goals by Romania's Alexandru Maxim and Austria's Martin Harnik.
Nuremberg drop into the bottom three after their 2-0 defeat at home to Borussia Moenchengladbach, who moved up to fourth and into the Champions League places at the expense of Bayer Leverkusen.
A first-half free-kick by Venezuela's Juan Arango and a late penalty from 'Gladbach's Max Kruse sealed the three points to put their side in the top four.
Earlier on Saturday, Leverkusen sacked coach Sami Hyypia in the wake of Friday's 2-1 defeat at strugglers Hamburg which left them with just one win in their last 11 games and facing a battle to qualify for next season's Champions League.
The 40-year-old former Liverpool captain, who took on his first senior coaching role last August, has been replaced by Sascha Lewandowski, the head coach of Leverkusen's junior side, who has five games to rescue their Champions League status.