Gremio scored the only goal of the second leg in Porto Alegre with seven minutes remaining to force a shootout but San Lorenzo goalkeeper Sebastian Torrico produced fine saves to deny Hernan Barcos and Maxi Rodriguez from the spot to give the visitors victory.
Julio Buffarini converted the winning spot-kick for the Argentine visitors, who were lucky to survive in Brazil.
Gremio had 10 shots to five for the match with San Lorenzo only testing the hosts' goalkeeper Marcelo Grohe once through the 90 minutes.
Gremio's supporters saw plenty of opportunities go begging in the first half with Barcos having his chip over Torrico's head cleared off the line in the 11th minute, while the home side's captain was denied at close range by San Lorenzo's goalkeeper in the shadows of half-time.
Dudu's goal late in the second half gave Gremio hope of clinching a late victory but San Lorenzo held on and took an early advantage in the shootout when Torrico saved the opening penalty from Barcos.
The next three spot-kicks were converted, putting the visitors ahead 2-1, before Torrico tipped Rodriguez's penalty onto the bar, and the ball bounced down and out.
San Lorenzo's fortune did not end there with both Nicolas Blandi and Buffarini's efforts going in off the post.
Cerro Porteno had Matias Corujo and Daniel Guiza sent off - the latter from the bench after being subbed off - and Cruzeiro lost Bruno Rodrigo to a second yellow card just before Dede's 80th-minute opener.
In the other round-of-16 tie, Arsenal qualified for the last eight with a 1-0 victory at Chile's Union Espanola with Diego Braghieri scoring the only goal of the two-legged tie in the 64th minute on Wednesday.
