We report the first observation of Upsilon(2S)->eta Upsilon(1S), with a branching fraction B=(2.1(-0.6)(+0.7)(stat)+/- 0.3(syst))x10(-4) and a statistical significance 5.3 sigma. Data were acquired with the CLEO III detector at the CESR e(+)e(-) symmetric collider. This is the first process observed involving a b-quark spin flip. For related transitions, 90% confidence limits in units of 10(-4) are B(Upsilon(2S)->pi(0)Upsilon(1S))< 1.8, B(Upsilon(3S)->eta Upsilon(1S))< 1.8, B(Upsilon(3S)->pi(0)Upsilon(1S))< 0.7, and B(Upsilon(3S)->pi(0)Upsilon(2S))< 5.1.