Challenge Cup holders Pier weren't at the races against their visitors Bedale, who were the livelier side in the first half and held a 1-0 advantage at the break.
Pier upped their game after the interval an were level on the hour-mark, Sean Exley racing onto a long punt forward from keeper Steve Sheader and finishing confidently.
Holders Pier were then left fuming after Exley was felled in the area and the referee and linesman decided to award a free-kick rather than a penalty.
RETRO SPOTLIGHT: 15 nostalgic Scarborough photos from the Scarborough News sports archives
Scarborough Athletic slip to 2-0 defeat at Brackley Town in National League North opener
Ebberston battle back to sink hosts Filey in SBL Premier Division thriller
Commonwealth Games 2022: Scarborough's Chris Turnbull and Team England win bowls mixed para pairs bronze medal
Jack Carradice-Clarkson takes 6-11 as Flamborough sink Wold Newton
The hosts were the better side in the second half and went in search of a winner, but they were hit by a hammer blow with just two minutes left on the clock as Bedale bagged a second and seemingly a place in the final.
Pier weren't ready to relinquish their unbeaten record and grasp on the Challenge Cup too easily though and they levelled up in dramatic circumstances as Jimmy Beadle was fed the ball with his back to goal and he turned his man superbly before firing into the top corner to make it 2-2 and send the cup clash straight to penalties.
Martin Cooper, Exley, Beadle and Will Jenkinson all scored their penalties, and after Sheader saved Bedale's third spot-kick, Gary Thomas had the chance to send Pier through with the fifth penalty, but he was denied by the Bedale gloveman.
That crucial save sent the shoot-out to sudden death and although Neil Thomas kept his composure to score Pier's sixth, Bedale converted and then Shaun Dodson skied his effort over the bar to send Bedale through to the final.
Boss Andy Spivey said: "We weren't really at the races, but we battled back into it in the second half after they dominate early on.
"It's a tough way to lose our unbeaten run, it's hard to take, but we'll go again. We still have a lot to play for so we'll have to bounce straight back."
Sam Garnett stood out for Pier.
In the only Division One game to go ahead, Filey Town were made to battle hard for a 3-2 victory at Sleights.
Town could and should've been 2-0 up despite a spirited start by the hosts Sleights, but Ricky Tomlinson and Darren Clough both spurned superb chances.
They away side did take the lead when usual Reserve team player Brandon Milner tapped in, and their lead was quickly doubled by another second-string regular Matthew Bedson.
Sleights gave themselves hope heading into the break as Taylor Humble scored a superb solo effort to half their deficit.
Ben Briggs' header cannoned back off the post for Filey after the break, while Sleights had shouts for a penalty turned away by the referee.
Filey then took a 3-1 lead when Tom Micklethwaite swept home from the penalty spot after Tomlinson was brought down in the box.
Back battled Sleights again though and Charlie Patterson gave Sam Leadley and Ed Turner's men a lifeline as he made it 3-2.
Leadley hit the post for the hosts late on but Sleights couldn't find a way through and Town took the three points.
Sleights' man of the match was defender Adam Entwistle, while Town gaffer Brannan praised his back four of James Jenkinson, Callum Gravestock, Nathan Robson and Ellery Liley.
The only other game to go ahead saw Goldsborough United ease to a 5-1 home win against struggling Ayton in Division Three.
Man of the match Ben Watson fired two for victors United, who dominated from start to finish and led 3-0 at the break.
United's other goals came courtesy of Simon Taylor, Owen Stoker and Ryan Roe, while Ayton grabbed a late consolation through Chris Reddish.
United player-boss Mike Dent said: "It was our easiest game of season, we dominated from start to finish and they only scored a consolation goal late on."
Keeper Gary Maw was Ayton's man of the match as he made a string of top-drawer saves to keep the scoreline respectable.