The 17-year-old from Wishaw, near Glasgow, broke Stephen Hendry's six-year record with his 5-4 victory and will now meet Nigel Bond or Bill Oliver on Thursday.
Higgins raced into a 3-0 lead with the aid of a superb 136 clearance in the third frame and looked to be coasting. But Wilkinson, the World Matchplay champion, began to produce the tight safety play which accounted for another teenage prospect, Ronnie O'Sullivan, in the previous round.
Wilkinson won three of the next four frames and forced the contest into a decider by taking the eighth on a re-spotted black.
Higgins, however, coped with the pressure admirably as he ran in a 50 break to record the finest win of his fledgling career.
'I'm not really surprised with the result,' he said. 'I knew that if I played as I know I can, I had the ability to do it.'
Dennis Taylor, winner of the inaugural Grand Prix title eight years ago, produced his best performance of the year to beat Belfast's Joe Swail 5-2.
Cliff Thorburn, another former world champion still in contention, recorded his best result for over two years late on Sunday night with a 5-3 defeat of John Parrot, the world No 2.
ROTHMANS GRAND PRIX (Hexagon Theatre, Reading) Fourth round: P Ebdon (Eng) bt D Morgan (Wal) 5-3; C Thorburn (Can) bt J Parrott (Eng) 5-3; J Higgins (Sco) bt G Wilkinson (Eng) 5-4; D Taylor (N Irl) bt J Swail (N Irl) 5-2; M Bennett (Wal) bt M Clark (Eng) 5-2, S James (Eng) bt J Johnson (Eng) 5-1.Reuse content