Two quick-fire goals midway through the second half booked Derry's place in the semi-final of the Ulster MF Championship.
The goals, from Patrick Coney and Shane McGuigan inside a minute of each other, were the crucial cushion after the sides had been level six times in an entertaining first-round tussle at Celtic Park yesterday.
Down recovered from a 0-7 to 0-4 half-time deficit to take the lead five minutes into the second half.
They got a dream start to the second half with a Tiarnan Rushe goal and an Aaron Magee free and the game was well-balanced heading into the final quarter.
Derry got a stroke of luck when Coney's attempt at a point dropped into the far corner of the net.
And the home side sealed the win when Shane McGuigan got in behind two Down defenders, caught a high ball before turning and planting the ball into the corner.
Down had a late penalty appeal turned down, but Derry, with AFL-bound star player Conor Glass switching from attack to full-back to curb the Mourne threat, saw the game out to book a semi-final slot against Donegal.
The sides were level four times in the first 20 minutes before Derry pulled clear in the 10 minutes before the break. Aaron D'Arcy fired over a close-range point for the opening score of the game in the third minute and after Derry missed a couple of frees, they equalised through Shane McGuigan five minutes later.
Rushe and Fergal Higgins traded points before Glass put Derry ahead for the first time with a free.
Deaglan Morgan equalised again for Down and McGuigan and Aaron Magee swapped frees to leave the teams level at 0-4 apiece.
Derry took over, with three unanswered points before the break. Down got a dream start to the second half before Rushe sidestepped his marker before drilling the ball low into the far corner. They stayed with Derry for three-quarters of the game, but the Oak Leafers' two-goal salvo saw them run out deserving winners.
Scorers - Derry: S McGuigan 1-2 (1f), C Glass 0-3 (3f), P Coney 1-0, F Higgins, J Doherty 0-2 each, M Mullan, S Downey 0-1 each. Down: T Rushe 1-2, A D'Arcy 0-2, A Magee 0-2 (2f), D Morgan 0-1.
Derry - C Mullan-Young; N Keenan, C McGrogan, E Concannon; S Downey, M McEvoy, C Maunsell; P Kearney, J Doherty; C Glass, S Higgins, P Coney; F Higgins, F Kearney, S McGuigan.
Subs: B Cassidy for Higgins (35), E Murray for P Kearney (47), M Mullan for McGuigan (56).
Down - J Heaney; C Cox, P Murdock, D McLaughlin; C Carr, M Harte, P Laverty; F Aiken, CJ Barr; D Morgan, J McGovern, A D'Arcy; C Gordon, T Rushe, A Magee. Subs: PJ Davidson for McGovern (35), D Connolly for Aiken (41), N Turkington for Gordon (49), O Donnelly for Rushe (BC, 55), O McConvey for Harte (60).
Ref - J Lewis (Fermanagh)