Goals from Lee McCulloch, Daniel Cousin and DaMarcus Beasley gave them the most unexpected of results in a humid Stade Gerland to leave the French champions stunned.
The home side hit the woodwork three times and had no fewer than 25 shots on goal, but Rangers deserved the win for the effort they put in over the 90 minutes.
Rangers had to weather an early storm as the French champions swarmed forward in the opening 15 minutes, but Allan McGregor was kept well protected by his defence.
Cleber Anderson headed an early corner well over and Juninho and Sidney Govou were causing problems in front of the Rangers' defence.
But the Gers were disciplined at the back and there was a ray of hope up front when Cousin saw a shot blocked in a promising break.
Karim Benzema saw a shot deflect off Carlos Cuellar, but McGregor was alert to the danger and well positioned to clutch the ball above his head.
Rangers broke out midway through the first half when a terrific 50-yard run from Alan Hutton won their first corner. Beasley swung it over with his left foot and McCulloch outjumped the home defence to bullet home an unstoppable header.
It was just the break Walter Smith's side needed, but they did not have long to rest on their laurels as Lyon came back strongly.
Juninho was just a yard too high with an ambitious 30-yard free-kick which dipped just over McGregor's crossbar.
Hutton impressed with his forward runs but his defending left a lot to be desired as Fabio Grosso gave him a torrid time.
The Scotland defender was fortunate to escape a barge on the wing-back in the penalty area which the Norwegian referee Tom Ovrebo turned a blind eye to.
There was another great run from Grosso late in the first half as he hit the by-line but his low cross found no takers in the box.
Juninho conned the referee on the stroke of half-time when he dived at the edge of the area and David Weir was yellow-carded. He took the free-kick himself and beat McGregor but his effort came back off the underside of the crossbar.
Remarkably, Rangers made it 2-0 after 48 minutes when Hutton played the ball in to Cousin, who controlled the ball before lashing a right-foot shot beyond Remi Vercoutre at his near post.
Milan Baros had a chance to pull a goal back shortly afterwards but he scooped his shot over the crossbar from good position.
Rangers made it 3-0 in 53 minutes when Beasley expertly controlled a long through ball from Cousin and kept his head to tuck the ball past Vercoutre.
Lyon changed things in a bid to salvage it, but Rangers were well-drilled and kept them to shots from distance for the most part.
Juninho hit the post with a superb left-foot shot after 69 minutes which beat McGregor, but it was clearly going to be Rangers' night.
Anderson headed the ball against the crossbar in the closing stages from another corner as Rangers escaped with a clear sheet.