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The New Zealand side had the game under control with less than 15 minutes to play, before conceding two late goals.
It was a genuine heartbreaker, as the Kiwis had scored two goals of the highest quality – including a 30m stunner by Liberato Cacace – but gave up three soft ones.
New Zealand desperately missed the defensive leadership and presence of Winston Reid, who lasted only three minutes before succumbing to a knee injury.
Goalkeeper Michael Woud had a game to forget, sharing a portion of the blame for all three goals conceded.
Keepers are always easy targets – as their mistakes are magnified – but Woud looked edgy for much of the match.
He pulled off some crucial saves but seemed to lose focus and confidence late in the match.
It was a harsh lesson for the Oly Whites, who played some nice football but lacked a clinical edge.
Nothing comes easy on the world stage, but they dropped their standards at crucial moments.
For all their good work, New Zealand were sloppy in possession, which invited pressure, especially in the second half.
Players were guilty of taking a touch too many and easy passes went astray, as concentration wavered.
It leaves New Zealand's qualifying hopes on a knife edge, with one game to come against Romania.
It was a nightmare start for the Oly Whites, as Reid was injured in the first challenge that he made.
The 33-year-old tried to play on, but succumbed a minute later, clutching his left knee as he was replaced by George Stanger.
But that was soon forgotten, with Cacace's wonder strike. It was one of the best goals ever scored by a Kiwi, a vicious half volley from more than 30 metres, that arced into the top right corner.
He exhibited stunning technique, as the ball bounced slightly to the side of the 20-year-old, who had to adjust his body.
The Oly Whites could have gone further ahead, but the pass from Elijah Just was too heavy for an unmarked Chris Wood.
Honduras should have equalised in the 23rd minute, but Jorge Benguche directed his header wide of an open goal, after Woud had parried a powerful free kick.
The Oly Whites responded, Callum McCowatt forcing a strong save after some neat interplay around the area, though a better connection would have seen a second goal.
New Zealand were fortunate just before halftime, as Honduras midfielder Luis Palma twisted his way into the area, before being denied brilliantly by Woud.
But that warning was not heeded, as Palma headed home from a deep cross in the 46th minute, though an unbalanced Woud should have done better, as he got his positioning wrong.
Hay was clearly displeased – as the corner had been given away needlessly, then there was no pressure on the cross.
But New Zealand responded just after the break, with another sumptuous goal, this time from Wood, after a lightning counterattack. Cacace and Just combined well down the left, before just produced a perfect ball for Wood's unerringly finish.
The Oly Whites had the advantage but couldn't lock it down. Honduras were unlucky – striking the inside of the post after a delightful move – before Woud was under pressure from a slashing cross.
Dane Ingham wasn't far away from setting up an unmarked Wood in the 73rd minute, which might have made the game safe.
That proved costly, after a horror moment for Woud, that gifted the Hondurans a crazy goal.
There didn't look to be any danger – as Stanger shepherded the ball towards his keeper, but Woud took a passive air swing and missed, leaving Juan Obregon to run it into an empty net.
Woud made some amends with a brilliant stop minutes later, but his awful night was capped by the third goal by the Central Americans in the 87th minute. It looked a fairly routine save – but the shot from Rigoberto Rivas slipped through his grasp. The lead up was also poor, with a needless giveaway allowing Honduras to break.
Honduras 3 (Luis Palma 45 + 1, Juan Obregon 78, Rigoberto Rivas 87), New Zealand 2 (Liberato Cacace 10, Chris Wood 49). Halftime: 1-1.