The Reds totally dominated the first half and Dean Gorre notched the first from the edge of the penalty area on 43 minutes.
Isaiah Rankin scored the second on the stroke of half time after Chris Lumsdon's free kick came back off the bar.
However, the second half was a different story and goals from Hawley 67, Smith 72 and Taylor 88 gave Walsall an unlikely looking victory and ended the Reds title chances.
Barnsley Reserves 2 Walsall Reserves 3
Younster Craig Parry played in goal for the Reds with Matt Ghent likely to get a rare start in the first team on Saturday after Andy Marriott's departure.