Sheffield United goalkeeper Steve Simonsen, who had kept his side in the game with three top-class saves in normal time and two more in the shoot-out, missed the decisive spotkick as Huddersfield clinched victory after a goalless 120 minutes at Wembley.
Huddersfield's Tommy Miller, Blades midfielder Lee Williamson, Town's Damien Johnson and United defender Matt Lowton all failed with their penalties, while Blades substitute Andy Taylor hit the post.
It was cruel on Danny Wilson's Blades, who have now lost four play-off finals after defeats in the Championship in 1997, 2003 and 2009.
But if either side deserved to edge through after a stiflingly cagey 120 minutes it was Huddersfield, beaten by Peterborough in last year's final at Old Trafford and semi-final losers the previous season, with the West Yorkshire outfit creating far more chances.
Town manager Simon Grayson has now won promotion from the third tier three times with different clubs - Blackpool and Leeds the others - while counterpart Wilson was left to reflect on a miserable end to the season after his side lost out on automatic promotion to city rivals Sheffield Wednesday.
Simonsen ensured a desperately tight final went into extra-time, producing two fine saves late in the second half to keep out headers from Huddersfield skipper Peter Clarke.
Blades captain Michael Doyle also cleared the ball off the goalline from Miller during a frantic spell of pressure from Town.
Huddersfield were also denied the breakthrough a minute into the second half when winger Danny Ward crashed a shot against the angle of crossbar and post after Callum Woods' cross had been headed clear.
Ward, who hit the crossbar in last season's play-off final, exploded into action in the first minute of the second half, slamming the ball against the woodwork from 20 yards.
The Blades responded and Harry Maguire headed wide from Stephen Quinn's corner and in the 61st minute Town skipper Clarke almost stole in at the far post, but headed Higginbotham's flag kick inches wide.
Tireless Blades midfielder Quinn fired across the six-yard box in the 70th minute, but the ball evaded lone forward Cresswell.
Quinn then combined with defender Lowton and pulled a low shot just off target, but as the game entered the final quarter both sets of fans were beginning to suspect extra-time.
Simonsen pulled off two terrific saves deep in quick succession deep in the second half to rescue his side.
First he got down low to keep out Clarke's header, with Miller's follow-up effort cleared off the goalline by Doyle.
And when Ward fired the subsequent corner into the box, Clarke outjumped the Blades defence to head firmly goalward only to be denied by Simonsen again.
The Blades had failed to muster a single effort on goal in an opening period that was fast and full-blooded, but short on finesse.
And while Huddersfield threatened to snatch the decisive goal as the end of normal time beckoned, Clarke had to be at his best in his own penalty area in the 98th minute to block Quinn's thumping drive.
The pattern was by now long established. Cautious build-up play without the final, killer pass.
Quinn, the Blades' outstanding player, wriggled past three defenders in the penalty area at the end of the first period of extra-time to fire straight at the sprawling Smithies.
It was United's first shot on target in 105 minutes.
Simonsen thwarted Town again in the 109th minute, this time blocking substitute Alan Lee's angled effort with a stunning reflex save, while Blades winger Ryan Flynn hacked Gary Roberts' free-kick clear soon after as two tired teams staggered towards a penalty shoot-out.
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