The Shrimps produced an excellent performance to hold the League One leaders but a Peter Murphy penalty miss proved vital in the shoot-out.
Jim Bentley’s side got off to the worst possible start when they went a goal down after just three minutes.
Striker Paddy Madden found himself in space down the right and crossed to the far post, the ball was cleared to the edge of the area and Sam Mantom met the loose ball perfectly with a left foot volley flying into the roof of the Morecambe net.
The home side enjoyed the better of the early stages with Duane Holmes forcing a save from Dan Nizic before the Shrimps began to threaten with Aaron Wildig furious not to get a penalty after he looked to be bundled over in the area.
The Shrimps started the second half superbly and Kevin Ellison wasted a glorious chance just seconds after the restart when he was played in on goal by Wildig but dragged his shot wide of the left-hand post.
Seconds later Wildig forced former Shrimps loanee Joe Anyon into a superb flying save to his left-hand side as the pressure increased.
Bentley’s visitors finally got their reward as they levelled things up on 53 minutes.
Ryan Edwards rose above his marker to head home Michael Rose’s left-wing corner to make it 1-1.
The draw meant the game went to penalties with Scunthorpe making no mistake with their five.
Captain Murphy however missed the Shrimps’ first meaning successful strikes by Lee Molyneux, Paul Mullin and Rose went unrewarded as Luke Williams calmly sent Nizic the wrong way to send the Iron into the last 16.
Scunthorpe: Anyon, Clarke, Wallace, Goode, Townsend (Morris 90), Holmes (Bishop 82), Mantom, Smallwood (Van Veen 82), Williams, Madden, Adelakun. Subs not used: Daniels, Wiseman, Hopper, Butroid.
Morecambe: Nizic, Whitmore, Edwards, Winnard, McGowan, Murphy, Rose, Conlan (Molyneux 84), Wildig (Mullin 78), Stockton, Ellison (Turner 71). Subs not used: Roche, Wakefield, Kenyon, Massanka.
Referee: Darren Drysdale