Moenchengladbach, which had been second, lost to Hertha Berlin 3-0.
However, with the leader cruising at 3-0 up thanks to goals by Sancho, Mario Goetze and Raphael Guerreiro, Hoffenheim came off the ropes with Algeria forward Ishak Belfodil netting twice.
Dortmund hold a seven-point lead in Germany and Bayern Munich's six-year domination of the Bundesliga is under serious threat with Sancho in the thick of things.
He also became the youngest player to record eight goals in the Bundesliga.
The 18-year-old looked to have scored a fortuitous opener when the ball bounced off him and into Hoffenheim's net with 11 minutes gone, but the video assistant referee spotted the ball had hit his upper arm. Schalke, last season's runners-up, came close to another equaliser early in the second half but Serge Gnabry killed off their hopes when he wrong-footed keeper Ralf Faehrmann with a clever header from a Lewandowski bicycle kick.
With the result, Dortmund drop points but stay atop the standings meanwhile Hoffenheim slipped to the 9th spot.
First captain Marco Reus injured his thigh and then coach Lucien Favre was forced to miss Saturday's Bundesliga home game with Hoffenheim with illness.
Sancho nearly got a second goal in the 75th but his low shot hit the post and bounced clear - before the hosts went up the other end and scored through Ishak Belfodil.
But Ishak Belfodil pulled one back before Pavel Kaderabek and Belfodil headers rescued a dramatic point.
Belfodil completed the comeback and claimed a point for Hoffenheim when he launched himself at a freekick and his header beat goalkeper Roman Burki on 87 minutes.
"The club had shown with a player like Christian Pulisic that they were going in the right way, playing youngsters and giving them a chance", Sancho said.
The German club, who face Tottenham Hotspur on Wednesday at Wembley in the first leg of their Champions League round-of-16 tie, have seen Sancho develop into arguably Europe's most promising young attacking talent this season and continue to scout English academies. "Especially after such a performance for large parts of the game and after a strong first half".