Pacers guard Lance Stephenson, who had 16 points and 11 rebounds, made a driving layup with 3:13 left to cut Cleveland's lead to 95-93.
The Pacers have won three of four and improved to 3-0 against the three-time defending Eastern Conference champs.
It was a stunning twist, coming nearly exactly nine months after the Cavs rallied from a 26-point deficit on the same court to beat IN in the playoffs.
This time, the Pacers handed Cleveland a third straight confounding loss. After Victor Oladipo's jumper gave IN an early 6-4 lead, the Cavaliers reeled off 22 unanswered points.
Stephenson had plenty of help.
Following the game, James said the out-of-bounds call was correct but he also made mention of a prior no-call that allowed Milwaukee Bucks forward Giannis Antetokounmpo to score the winning basket over the Oklahoma City Thunder.
"We went 1-5, or 1-4, whatever the hell it was, on this road trip, so there ain't no progress", James, who finished with 27 points, 11 assists and eight rebounds, told reporters after the game.
The four-time MVP wasn't amused. "That's all. He's a little dirty".
"We all have to be held accountable", James said later at his locker.
"I don't know where it kind of went wrong or what happened", James added. "So they caught me on the retaliation, so - but he played well tonight". "He played well, though".
With about eight minutes left in the game, the Pacers swingman was able to get James to commit a technical foul. McMillan let him play the rest of the way. IN shut out the Cavs over the final 3:57 and twice stopped James when he could have given the Cavs the lead.
Oladipo made the free throw to extend Indiana's lead to 84-82.
James then had two chances to give Cleveland the lead in the final 2 seconds.
Toronto Raptors All-Star guard DeMar DeRozan has established himself as one of the premier players in the league at his position over the last few seasons.
"We got to play much better", Cavaliers coach Ty Lue added.
Kevin Love, who scored 10 points, said he's confident the Cavs can turn it around in time to reach the finals for a fourth straight season.
Stephenson tied it with a 3-pointer at 74-all late in the third.
James was understandably frustrated, and he was caught on cameras in the first half of the game lashing out at his team-mates and assistant coach Phil Handy, after Pascal Siakam dunked with little resistance. Cleveland had a 39-18 scoring advantage on fast-break points.
Fred VanVleet scored a career-high 22 points for Toronto, Jonas Valanciunas had 15 points and a season-high 18 rebounds and the Raptors overcame the absences of two starters. IN has won three of its last four and has beaten Cleveland three times in one season for the first time since 2013-14. IN was 10 of 21 on 3s just two days after going a season-worst 1 of 18 from beyond the arc.
The Cavs are without Isaiah Thomas and Dwyane Wade as both players are resting.
While Rose and Shumpert continue recovering from injuries, Cleveland coach Tyronn Lue chose to give Thomas and Wade extra rest because of the back-to-backs.
"I'm going to say this and we're going to move forward because it's over", Lue said before the IN game as an explainer. Turner has been out with an injured right elbow.
"That I haven't played in the fourth quarter", he said, adding his team is getting "tore up". "We had a lot of energy in the first half". We've got to get back to that helping the helper.
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