Goalkeeper and captain Siphamandla Hleza proved to be the hero for the Motsepe Foundation Championship outfit with two saves in the shootout after the game had ended 2-2 after extra-time.
Cheswyn Philander had given the lower league side the as early as the fourth minute but the the PSL equalised through Lehlohonolo Mojela just six minutes later.
Neither side created enough for the rest of the contest and fixture went into extra-time.
Sekhukune took the lead in the first half of extra-time when substitute Olerato Mandi snuck the ball past Hleza at the near post.
Milford showed great fighting though and made it 2-2 through Sibulele Mekuto in the dying stages to send the game into penalties.
Hleza made saves to deny Bradley Grobler and Mogaila before the goalkeeper stepped up himself to bury his spot-kick and send his team into the semifinals.
Sekhukhune United coach Eric Tinkler says he was proud of his players' performance despite their "heartbreaking" shock Nedbank Cup quarter-final loss to Milford FC.
Casric Stars' remarkable Nedbank Cup dream continued after the Motsepe Foundation Championship (MFC) side knocked out AmaZulu with a dramatic 2-1 extra-time victory in their quarter-final clash at the Moses Mabhida Stadium on Saturday.
AmaZulu head coach Arthur Zwane believes his side must tread carefully when they face Casric Stars in their Nedbank Cup quarter-final encounter at Moses Mabhida Stadium on Saturday.
TS Galaxy assistant coach Bernard Parker believes the club has a real opportunity to mount a serious Nedbank Cup challenge this season, but insists they must first avoid an upset.
