Mancini's substitutions proved to be golden as Balotelli and Milner came off the bench to give City a tough win following a solid defensive display from the Toffees
Everton's recent form against City has been superb, they are the last side to have beaten Roberto Mancini's men and did the double over them last season.
It was the Toffees who started the better of the two teams, asserting early pressure on City's creative players and carving a few half-chances for themselves.
City had the first good chance to score however, Phil Jagielka's attempted header to Howard was too short and Dzeko looked to capitalise, intercepting and rounding the American but Jagielka recovered well to steal the ball from the Bosnian striker's toe.
David Silva was being shadowed by Jack Rodwell over the entire pitch but managed to shake off the youngster, playing the ball through Rodwell's legs and crossing for Dzeko but Jagielka was on hand again to clear.
City had now gained the upper hand and were asserting themselves on the game with patient passing while Everton were doing their best to remain disciplined and cut off any supply from the dangerous Silva and Nasri.
A poor Phil Neville clearance gave City a chance to create a chance but Aguero shot high and wide when presented with an opportunity inside the box.
Jack Rodwell became the first player to go into Howard Webb's notebook after going through the back of Silva and this was the first of a flurry of bookings, Osman, Neville and Yaya Toure all being shown the yellow card in a short space of time.
City were still struggling to break down the Toffees' rear-guard but looked dangerous as Richards overlapped down the right but his cross was just behind Dzeko who could only shoot over.
Aguero then showed his class with a curling effort from just inside the box which Howard did well to turn away from a corner, the American also dealing with Barry's volley comfortably.
Dzeko and Toure both had speculative long-range efforts that failed to hit the target before the half-time whistle saw the teams go in for the break without a goal between them but Everton likely to have been the more satisfied.
The second half saw City issue an early statement of intent, Sergio Aguero looking especially lively, having a couple of early efforts at Time Howard's goal.
Leon Osman also saw his effort straight into Joe hart's gloves as Everton looked to create opportunities of their own, Cahill also saw a looping header go over the crossbar.
City were still unable to worry Everton despite a lot of possession and they made a change on the hour as Balotelli replaced Dzeko who had not had an impressive game after being awarded the Player Of The Month award pre-match.
The substitution proved to be inspired as Sergio Aguero cut infield and played the ball into Balotelli who hit a shot from 20 yards that deflected off Jagielka and beat Howard to give City the lead.
The goal energised City who could have scored a quick second as Silva tricked his way into the area, his first effort was blocked but the ball fell back to the Spaniard who rattled the post with his follow up, Balotelli also firing just wide from the resulting corner.
Everton, who had already brought on Saha for the injured Cahill, introduced Drenthe and Vellios in an attempt to rescue the game, City making defensive minded changes as Milner and Savic replaced Aguero and Nasri.
It was still City who were looking more dangerous, however as Toure hit another long-range effort that Howard did well to keep out low to his left, Silva also netted from an offside position following Balotelli's low cross.
City finally did have their second as Silva turned away from his marker and played an inch perfect through ball to James Milner who turned in his first Premier League goal since his big-money move to Eastlands last season to wrap up the three points for the home side.
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