Martyn, who turned 35 on Saturday and hit 78 off 91 deliveries including 12 fours, teamed up with with Mike Hussey who played a steadying role scoring 32 not out from 85 balls, as Australia cruised to victory in the 37th over after an early scare.
India are celebrating Diwali, which is also known as the 'Festival of Lights', marking the start of the Indian New Year, but it was a delay due to one of the light towers going off at the Sawai Mansingh Stadium that saw Adam Gilchrist's downfall.
Gilchrist was just starting to warm up after hitting two boundaries to take him to ten off ten deliveries, before the light tower malfunction, with England quick Sajid Mahmood clean bowling the Australian opener with the first ball after the delay.
Four runs later, Ricky Ponting was caught at slip by Andrew Strauss of the bowling of Mahmood, with Strauss awkwardly clutching the catch to send the Australian captain back to the pavilion for one with the score at 34 for 2.
It was soon 34 for 3 when Shane Watson, who opened the batting with Gilchrist, tried to pull a James Anderson delivery that stayed low, resulting in the ball ricocheting into the stumps which put Australia in a shaky situation in their low run chase.
However Martyn and Hussey combined for a Australia's highest ever partnership in Champions Trophy history with a fourth wicket stand of 118 to take the match out of England's grasp.
Martyn celebrated in style as he took advantage of some poor England bowling to race to 50 of 35 balls, taking a special liking to the short spell of Steve Harmison in which he hit the first three balls for four.
Harmison's first two overs went for 13 runs each, with the Ashes paceman eventually recording figures of 1-45 off 4.5 overs.
The England fast bowler did claim Martyn's wicket though, as the Australian edged one to keeper Chris Read when on 78.
Andrew Symonds joined Hussey to wrap up the match and all but eliminate England from the Champions Trophy after they had also lost to India in the opening match of the tournament.
Great start for England
Earlier, Ponting had won the toss and surprisingly elected to field first on what he described as a good pitch, with England openers Strauss and Ian Bell taking advantage of the good batting conditions putting on 83 for no loss after 18 overs.
Shane Watson (second from left)
after taking the wicket of Ian Bell
It looked like Ponting had erred in his decision to bowl first as England seemed to be cruising, but then the all too familiar one-day collapse occurred as they lost seven wickets for 53 runs to eventually only manage 169.
Strauss (56 off 90) and Bell (43 off 60) had set things up for a big total, but once they were gone the England batsmen put up little resistance as Kevin Pietersen (1), Andrew Flintoff (4), Michael Yardy (4), Jamie Dalrymple (3), and Chris Read (0) were all dismissed for a total of 12 runs.
The only middle order resistance Australia faced was from Paul Collingwood who eventually ran out of partners to remain not out on 22.
The pick of the Australian bowlers were Shane Watson, who returned figures of 3-16 off seven overs, and Brett Lee who didn't take a wicket but was tidy, finishing with 0-25 off nine overs.
Left-arm quick Mitchell Johnson also chimed in with 3-40 off his ten overs as England crumbled to ruin their openers' early good work.
England now play the West Indies on October 28 while Australia take on India on October 29 in the final match of the round robin section of the tournament.