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Myles Hippolyte and Bob McHugh netted after coming off the bench, adding to Blair Alston's strike, to turn the match in Falkirk's favour.
"We reacted brilliantly," said Houston, whose side now trail Rangers by 11 points.
"The substitutes had an impact tonight and that's what you want."
Kenny Miller and Barrie McKay netted early on for the visitors and Houston admitted his side were fortunate not to be further behind at the break.
"I've got to give credit to Rangers, they absolutely blew us apart," he told told BBC Scotland.
"Their pace, their power, their movement off the ball [and] their energy off the ball was far greater than ours.
"The only happy thing I could speak about in the dressing room was the fact it was only 2-0. It could have been four or five at least.
"We made a couple of changes, the changes worked.
"Myles Hippolyte made a difference and Bob McHugh, I'm delighted for him because he's had an injury-prone season so far. I know for a fact he's a goalscorer.
"We were poor in the first half. I say we were poor because I thought Rangers were really good and all credit to them for the way they came back.
"It sums up Falkirk this season."
Though Falkirk have played three more games than third-placed Hibernian, Houston's men now hold a six-point advantage over the Easter Road side.
Alan Stubbs' Hibs travel to take on Raith Rovers on Saturday.
"We've got great character, we never know when we're beat. We aren't blessed with the best players in the league but for character, we're probably top of it," added Houston.
Manager Peter Houston hailed the impact of his substitutes after Falkirk came from two goals down to beat Scottish Championship leaders Rangers.