The Foxes' performance deserved all three points and, although a late Kevin Doyle header levelled Iain Hume's first half opener, Steve Coppell's side were elevated to the Premiership because Watford were beaten at home by Milwall while Leeds were held at Elland Road by Stoke.
It was the visitors who squandered a glorious chance inside the first minute when Doyle latched on to Bobby Convey's long-range pass but he failed to bring the ball under control and from six yards out scuffed his shot wide.
Reading were aggrieved on 10 minutes when Doyle appeared to be hauled back by Paddy McCarthy.
The Leicester skipper was the last man and a foul would have meant a red card but the referee waved play on and instead it was the home side who almost scored when they broke quickly upfield with Marcus Hahnemann forced to beat away Hume's angled drive for a corner.
Leicester threatened again on 16 minutes when Matty Fryatt and Hume exchanged passes with the former firing in a 20-yard drive which the Reading keeper was grateful to turn away for another corner.
The home side continued to press with Fryatt's lay-off driven wide by Johannes Gudjonsson from 25 yards.
After Convey's 22-yard free kick had failed to trouble Paul Henderson, it was City who took the lead with a superbly crafted goal after 37 minutes.
Fryatt slipped the ball through for Hume who rounded Ivar Ingimarsson before keeping his cool to slot the ball beyond the Reading keeper from 12 yards.
The Foxes now had their tails up and almost doubled their advantage on 40 minutes when Gudjonsson smacked a 20-yard free-kick against a post with the keeper well beaten.
Five minutes after the restart City went close again and Gudjonsson tested the keeper with a trademark free-kick from distance with the USA international relieved to keep the ball out of the net with an outstretched leg.
Reading mounted a rare assault on 55 minutes when Henderson palmed away Convey's 10-yard shot with John Oster unable to capitalise on the loose ball.
Leicester began to tire as the game went to its final stages and Reading took full advantage to equalise on 85 minutes when James Harper's corner was flicked on by Ingimarsson for Doyle to power home a header.