This was the third meeting between the two teams this season with Mbombela having secured a 1-0 win at home in a league clash, before drawing 0-0 away in Cape Town.
The Spirited Ones started the match brightly with their new signing Toriq Losper pulling the strings in the middle of the park.
However, Umoya could not beat Websten van der Linde in Mbombela in goal and the score was 0-0 at the interval.
Tingwenyama came back rejuvenated after their half-time team talk with coach Milton Dlamini.
However, Dino Visser was in good form in Umoya goal as he made good saves to deny Cohen Sander and Felix Badenhorst.
The match ended in a 0-0 draw in regulation time and extra-time followed at the Athlone Stadium.
The two teams could not break the deadlock in extra-time and ultimately, the match went to a penalty shootout.
Umoya emerged 4-2 winners on penalties and they advanced to the quarter-finals, while Mbombela bowed out of the tournament.
The Citizens were looking to avenge the 2-0 defeat they suffered at the hands of the Lions of the North away in a PSL match earlier this season.
The hosts did most of the attacking in the first half, but they were struggling to break the visitors' defence.
Teko Modise and Thabo Nodada failed to beat Highlands Park goalkeeper Marlon Heugh with long-range shots.
Highlands Park's defence was able to contain City until the match referee blew the half-time whistle at the Cape Town Stadium.
A second half which was dominated by the reigning MTN8 Cup champions followed and they managed to take the lead through City captain Thamsanqa Mkhize on the hour-mark.
The visitors were struggling to cope with City's pacey attackers Kermit Erasmus and Craig Martin.
It was soon 2-0 to City when Martin pulled the trigger from the edge of the Highlands Park box and his thunderous effort beat Heugh hands down in the 70th minute.
The Lions of the North's defence was under pressure and they made a mistake in the 72nd minute with Heugh scoring an own-goal from Luckyboy Mokoena's backpass.
The goal sealed City's impressive 3-0 victory over Highlands Park on the night.
The victory saw the Citizens book their place in the quarter-finals, while the Lions of the North crashed out of the competition.