Albion looked to have got past the potential banana skin when central defender Jonas Olsson headed home Jonathan Greening's 64th minute corner.
But never-say-die Peterborough were not to be denied and Mackail-Smith stroked home his 18th goal of the season in the 87th minute when he converted a right-wing cross from his strike partner Aaron McLean.
It was a just reward for Darren Ferguson's side, who had taken the game to Albion in the first half and would have been in control but for goalkeeper Scott Carson.
Albion only really dominated for a 20 minute spell at the start of the second half and paid the price for easing off after Olsson struck.
Peterborough, backed by an army of around 4,000 fans, certainly showed no signs of being overawed and were unfortunate not to power their way into the lead in the first half - only to twice be frustrated by England international Carson.
Both openings were gifted to Peterborough by the Albion central defender Leon Barnett.
In the 21st minute he lost possession on the right-hand edge of the area to Mackail-Smith and Peterborough's leading scorer surged toward goal only to see his rising drive tipped on to the bar by Carson.
Barnett was again at fault nine minutes later when he was hassled into another mistake by the lively Mackail-Smith.
When the ball eventually ran loose to McLean 12 yards from goal, it needed another smart save from Carson to deny him.
Carson then denied George Boyd in the 42nd minute, before Albion were revived by a half-time pep talk from manager Tony Mowbray.
They were a different proposition after the interval when four times in just three minutes Joe Lewis frustrated Albion.
He denied Luke Moore and then in the space of a couple of seconds kept out efforts from Greening and debutant Jay Simpson, before following it up with a save from Borja Valero.
When he was finally beaten by Olsson it looked to have ended Peterborough's brave challenge.
That appeared to be even more the case when Mackail-Smith failed to convert a cross by Boyd from just six yards.
But Peterborough were not to be denied and got their reward three minutes from time when McLean raced clear down the right wing before crossing for Mackail-Smith.
They could have even gone on to win the game as McLean dragged his shot wide from the edge of the area in stoppage time.