A pulsating derby appeared to be heading for a draw when Albion goalkeeper Ben Foster brought down Matthew Lowton with seconds remaining and Benteke coolly stroked home Villa's first penalty of the season.
Sherwood sank to his haunches in celebration as Villa, without a win in 12 Barclays Premier League matches, climbed above Burnley and QPR and out of the bottom three.
Gabriel Agbonlahor had fired Villa into a 22nd-minute lead - his fourth goal of the season and first since late-November - after earlier seeing a shot squirm past Foster before clawed back by the keeper on the line.
Agbonlahor was also denied a penalty after being fouled by Foster and Fabian Delph struck a post as Villa went in search of a crucial second goal.
But Albion came right back into the game in the second half and Saido Berahino levelled after 66 minutes when he met Joleon Lescott's knock-back and headed home his 18th goal of the season in all competitions from close range.
Hull drew 1-1 with visiting Sunderland in another relegation tussle which saw Black Cats manager Gus Poyet sent to the stand following a first-half altercation with Tigers boss Steve Bruce.
The two men had to be separated on the touchline after Sunderland's Jack Rodwell fell in the box after 35 minutes and was booked for simulation by referee Mike Dean.
Poyet complained it was a penalty and after being sent off he walked across to Bruce and tried to shake his counterpart's hand.
Bruce appeared to respond angrily and had to be restrained by a linesman and members of his coaching staff.
Dame N'Doye's third goal in five games since his January move from Lokomotiv Moscow gave Hull a 15th-minute lead, the Senegal striker cleverly back-heeling Tom Huddlestone's cross into the net.
But Rodwell earned Sunderland a precious point when he nudged home Patrick van Aanholt's cross on the line with 13 minutes remaining.
Southampton moved above Liverpool into the top five with a 1-0 home victory over Crystal Palace.
The Saints had failed to score in their previous three games and seemed to be heading for another blank and more lost ground in the race for a Champions League place.
But Sadio Mane pounced with a composed finish seven minutes from time after Palace goalkeeper Julian Speroni had failed to hold James Ward-Prowse's shot.