Lee Clark's side rallied to nick a point in the dying moments of their match against Bolton to condemn Doncaster, who lost at Leicester, to League One on goal difference
On a dramatic final day that also saw Brighton and Hove Albion claim the final play-off spot, stunning late drama at the Reebok Stadium kept Birmingham safe on goal difference as they claimed an unlikely 2-2 draw.
Lee Clark's side seemed destined to drop into the third tier of English football for the first time since 1994-95 when they trailed Bolton Wanderers 2-0 with 14 minutes left.
But Nikola Zigic's header rallied Birmingham before their late pressure ended with Caddis nodding in from close range to delight the club's travelling supporters.
Birmingham were excellent in the first half and had 11 shots on goal to the three of their opponents, but they could not find the all-important breakthrough.
City – who started the day in 22nd, one point adrift of safety - saw Lee Novak go close twice around the half-hour mark before the same player steered in from close range after a free-kick, only for the effort to be ruled out for a foul in the build-up.
Lee Chung-Yong's arrowed finish from eight yards in the 57th minute gave Bolton the lead and Lukas Jutkiewicz was quick to double their advantage.
Zigic gave Birmingham a lifeline in the 78th minute, though, when he nodded Mitchell Hancox's excellent cross in before sustained pressure eventually led to a dramatic leveller.
Caddis was to provide it, following in after Zigic's header was cleared off the line by Tim Ream to secure his side's survival in the most dramatic way.
Birmingham's draw meant Doncaster were relegated by virtue of an inferior goal difference after a 1-0 defeat at champions Leicester City.
David Nugent scored the game's only goal from the penalty spot with 15 minutes to play as Doncaster – promoted in equally dramatic scenes on the final day of League One last term – were sent down.
At the other end of the table, Leonardo Ulloa's 92nd-minute header gave Brighton a 2-1 win at Nottingham Forest, a result that saw them finish a point ahead of Reading.
Matt Derbyshire headed Forest in front in the 22nd minute, but Stephen Ward levelled proceedings eight minutes after the break.
And Ulloa was on hand to head in Craig Mackail-Smith's cross in stoppage time to extend his side's season.
Brighton lost to eventual play-off winners Crystal Palace in last year's semi-finals.
Reading finished seventh after a 2-2 home draw against already promoted Burnley.
Kieran Trippier's own goal was cancelled out by Scott Arfield and then Danny Ings as Sean Dyche's side took the lead.
A stunning Garath McCleary volley drew Reading level with 32 minutes to play but they were unable to find a late winner.
Derby County finished third and will meet Brighton in the play-offs, but saw their 10-match winning streak against Leeds United come to an end as Matt Smith cancelled out Simon Dawkins' early goal in a 1-1 draw at Elland Road.
QPR warmed up for the play-offs with a 3-2 win at already relegated Barnsley, while Wigan Athletic, who will face Harry Redknapp's side over two legs, lost 4-3 at eighth-placed Blackburn Rovers.
Yeovil Town's first season in the second tier of English football saw them finish bottom as they lost 4-1 to Middlesbrough at home, while Blackpool – who ended just two points above the relegation zone – slumped to a 3-0 defeat against Charlton Athletic.
Other results on Saturday saw Huddersfield Town win 4-1 at Watford, while Ipswich Town beat Sheffield Wednesday 2-1 and Millwall edged Bournemouth 1-0.