At close of play on the second day of the first Test Australia, bowled out for 188 in their first innings, had a meagre lead of 43 runs and effectively only two wickets remaining.
Waugh and Gillespie were taken by helicopter to hospital in Colombo after they collided at full speed while going for the same catch before lunch.
Waugh broke his nose, which was reset under general anaesthetic, while Gillespie fractured the tibia in his right leg and will be flown home. Waugh is likely to be fit after a couple of days and may yet try to bat.
"I don't know, but knowing Steve I'd be surprised if he didn't come back and want to bat," said the Australian manager, Steve Bernard.
Waugh, fielding at backward square leg, turned and ran for a top edge by Mahela Jayawardene off Colin Miller. He collided with Gillespie, who had come in from the square-leg boundary. Gillespie's right forearm struck Waugh's face and the fast bowler's right leg was briefly trapped under the body of his captain.
The chance went begging and team-mates rushed to help both players, who lay on the ground for five minutes.
Shane Warne, assuming the captaincy from Waugh, took 5 for 52 as Sri Lanka slumped from 177 for 3 to 234 all out. It was Warne's 15th five- wicket haul in Tests and he was well supported by the off-spinner Miller who finished with 4 for 62.
Sri Lanka again made quick inroads into the Australian batting as Muttiah Muralitharan sent back Michael Slater leg-before for 27. The off-spinner ended the day with 3 for 35.
Chaminda Vaas dismissed Justin Langer (5) and Mark Waugh (0) as 14 wickets fell on the eventful second day.
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