The former Celtic trainee secured a deserved victory for the Black Cats with a 91st-minute goal, but then threw his shirt into the crowd as he celebrated and promptly collected a second yellow card.
Roy Keane's side dominated the game, but poor finishing looked set to see them head home with only a point until Wallace's intervention.
Sunderland came close early on as Liam Lawrence blazed down the right and swung in a right-footed cross which Daryl Murphy met, only to head too high from just six yards out.
Lawrence had a great opportunity himself in the latter stages of the half after Chris Brown broke past the Hull defence, with appeals for a push on Michael Turner being waved away by the referee.
He played in a cross which the Hull defence could not deal with, giving Lawrence an easy chance from four yards out. But he scuffed his effort and the hosts were able to clear.
A free-kick from Lawrence just before half-time nearly resulted in an own goal from Hull as Ian Ashbee inadvertently flicked the curling ball goalwards - but to his relief it crashed off the crossbar to safety.
City's Craig Fagan came close early on in the second half as he raced into the box and let fly from 12 yards, but Sunderland shot-stopper Darren Ward did well to direct it over the crossbar.
Nicky Forster then fired narrowly wide, before, at the other end, Brown mis-cued from just four yards out.
Moments later Sunderland hit the bar again after Wallace swung in a free-kick. The ball bounced nastily in front of Boaz Myhill, who recovered in time to tip it onto the bar.
Sunderland eventually made the breakthrough in injury-time after Wallace raced on to Brown's throughball and coolly placed it beyond Myhill from ten yards.