Despite leading 2-0 after 19 minutes thanks to efforts from Fredi Kanoute and Defoe, the Hammers then conceded five goals in the space of 25 minutes before late strikes from Joe Cole and Titi Camara restored a sense of respectability to the scoreline.
The action exploded right from the start and didn't let up for the entire 90 minutes. David James had to be alert to turn away a Darius Henderson header in the second minute, but the Hammers could have been four up within the opening 10 minutes.
On five minutes, Michael Carrick shot wide from 20 yards following good work from Trevor Sinclair, Defoe and Cole before Kanoute's diving header flashed narrowly wide after Richard Garcia's excellent right wing cross.
Kanoute should have capitalised on defensive hesitancy a minute later but shot wide from 15 yards out with just goalkeeper Phil Whitehead to beat. Then the Frenchman wriggled wide on the right but pulled a low shot well wide of the target.
The Hammers' midfield was combining slickly and it came as no surprise when they deservedly took the lead on 17 minutes. Cole's clever backheel just inside the Reading half released Defoe, who advanced to the edge of the box before slipping the ball wide for Kanoute to drill a low 15 yarder left-footed inside Whitehead's near post.
Two minutes, the Hammers doubled their advantage when Defoe capitalised on more good work from Garcia to fire a low 20-yarder past the hapless Whitehead for his fifth goal in five pre-season friendlies.
West Ham appeared to be cruising at this point, but received a shock to the system on 24 minutes. Tomas Repka was harshly adjudged to have fouled the burly Henderson 20 yards out and Jamie Cureton stepped up to fire a low free-kick beyond James' dive.
Hammers responded straight away and Defoe went close from Cole's whipped-in free-kick before Christian Dailly advanced forward to nod Sinclair's well flighted corner narrowly wide.
But on 32 minutes, the Hammers were made to pay for their profligacy in front of goal when Sammy Igoe's free-kick to the far post was met by Henderson. His powerful header was superbly kept out by James, but the striker was on hand to notch the equaliser.
Reading pushed on and incredibly took the lead on 37 minutes after Igoe pressed down the Hammers left, forcing a corner off Winterburn. Repka cleared Rougier's first kick, but the Trinadadian's second dangerous effort was only partially cleared to Parkinson, who rammed home from eight yards.
The game had completely turned on its head by now and five minutes before the break, the home crowd were celebrating again as Cureton added a fourth. Rougier, who had caused problems down the Hammers' right throughout the half, was released by Parkinson and laid a fine low ball beyond the backline for the striker to drive past the exposed James.
An end-to-end first half finished with West Ham back on the offensive and Sinclair stung Whitehead's palms from 20 yards before Kanoute saw a free-kick charged down.
Manager Glenn Roeder made two changes at half time, bringing on Ian Pearce for Repka and John Moncur for Sinclair but the pair had hardly warmed up before the night got worse for the Hammers four minutes after the break.
A flicked through-ball found its way to Cureton, James dived bravely to save but the referee and linesman mysteriously adjudged Winterburn to have held Igoe back and Cureton completed his hat-trick by beating James low to his right from the penalty spot.
The Hammers fought back and Kanoute was unlucky to see a free-kick deflected over the bar after Cole's mazy run was halted crudely on the edge of the box.
Winterburn was forced to retire on 59 minutes with a wrist injury. He was replaced by Scott Minto and the Hammers forced their way back into the game almost immediately.
Excellent inter-play down the right between Garcia and Carrick ended with Cole being cleverly freed to fire low past Whitehead from eight yards for his second goal of the pre-season campaign.
Kanoute then missed a golden chance to reduce the arrears when he raced one-on-one with Whitehead but shot too close to the keeper.
A rash of substitutes followed between the 65th and 71st minute. First Gary Breen came on to make his debut in place of Dailly and was joined by Sofiane, Camara and Labant for Defoe, Kanoute and Cole respectively. Sebastien Schemmel and Carrick were then replaced by Grant McCann and Laurent Courtois.
The Hammers reserves looked keen to impress and Titi Camara scored his third goal in two matches on 81 minutes with a superb individual effort, running through before blasting an unstoppable drive high beyond Whitehead into the top right corner.
A minute later, West Ham almost levelled when Courtois' excellent low drive from 16 yards out was superbly turned away by Whitehead low to his left.
The Hammers threw everything at Reading in the closing minutes but the home side held out to win an incredible match.
West Ham (4-4-2): James (Van der Gouw 79); Schemmel (McCann 68), Repka (Pearce 45), Dailly (Breen 65), Winterburn (Minto 59); Garcia (Johnson 65), Cole (Labant 65), Carrick (Courtois 71), Sinclair (Moncur 45); Defoe (Sofiane 65), Kanoute (Camara 65).