Ze Roberto and 21-year-old Santos forward Robinho added two more goals in the second half as Brazil ended a three-match winless run against their smaller neighbours. Bayern Munich's Roque Santa Cruz headed Paraguay's consolation.
Defender Lucio spoiled the day for the world champions when he was sent off for a second bookable offence in the 79th minute.
Brazil, second in the 10-nation South American World Cup qualifying group with 27 points from 14 games, moved within one point of leaders Argentina, whom they meet in Buenos Aires on Wednesday.
Paraguay stayed fourth with 19 points and their defeat was good news for Colombia, Uruguay and Chile, who are all two points behind them.
The top four teams go straight to the Germany finals next year and the fifth play off over two legs against the Oceania regions winners for another place. Ecuador, who upset Argentina 2-0 on Saturday, are in third place.
TWO PENALTIES
The game kicked off five minutes late because of an overlong fireworks display and Brazil, without suspended captain Cafu and worn-out Real Madrid striker Ronaldo, quickly took the initiative.
Paraguay goalkeeper Justo Villar twice dived at the feet of Adriano as the Inter Milan forward broke through and made an excellent save in the 15th minute to turn away Kaka's low drive after a quick exchange of passes by the Brazil attack.
Kaka was also foiled by a timely tackle from Julio Mansur when he was in an excellent shooting position.
Paraguay threatened with some of their trademark aerial attacks but failed to properly test goalkeeper Dida.
The breakthrough came in the 33rd minute when Roberto Carlos's cross struck the outstretched arm of Carlos Bonet, Uruguayan referee Martin Vazquez pointed to the spot and Ronaldinho sent the penalty low to Villar's right.
Nine minutes later, Robinho fell over Paulo da Silva's outstretched leg and, although television replays suggested no contact was made, Brazil were awarded another penalty and Ronaldinho blasted the ball high into the top left hand corner.
Ze Roberto, who hit the crossbar after a neat exchange with Kaka in the 48th minute, added the third in the 71st with a curling 25-metre shot.
In between, Paraguay's Carlos Paredes shaved the foot of the post with a shot on the turn and the visitors had a penalty turned down when Roque Junior appeared to hold down an opponent.
They were rewarded in the 73rd minute when Santa Cruz rose at the far post to head in Denis Caniza's cross from the right.
Despite Lucio's dismissal, Brazil restored their three-goal lead when Robinho ran on to Ze Roberto's pass in the 83rd minute and calmly slotted the ball past Villar.
