Itumeleng Khune replaced Daniel Akpeyi in the visitors goal while Anthony Akumu, Kgotso Moleko, Yagan Sasman and Bernard Parker were all handed starts after the loss to Maritzburg United last weekend.
It was the home side who looked threatening early on as Peter Shalulile went close to putting Highlands ahead inside the opening six minutes, but was denied with an excellent point-blank save by Khune.
Momentum quickly shifted to the Amakhosi and desperate defending from the hosts prevented Khama Billiat and Samir Nurkovic with a succession of close-range defensive blocks.
Another sloppy defensive clearance from the Lions of the North presented a clear sight on goal for Willard Katsande after 33 minutes, but the Zimbabwean volleyed wide of the near post which also proved to be the final clear-cut chance of the first half.
The Amakhosi started the second half with a double substitution in George Maluleka and Dumisani Zuma, who replaced Parker and Akumu.
It was Highlands who got their noses in front after Shalulile continued his scoring run when he cushioned home Luckyboy Mokoena's delivery at the far post inside the 57th minute.
The lead lasted just four minutes though after Sello Motsepe headed Maluleka's cross-field ball off a free-kick into his own net.
Highlands attempted a response inside the remaining minutes, but Abdi Banda fired over the top following a presentable opportunity.
Chances opened up towards full-time as Katsande headed wide with the goal gaping, ultimately sending the match to extra time.
The Lions of the North had a chance to seal victory late in extra-time, but Khune smothered Musa Nyatama's effort as the match went to a penalty shoot-out.
Billiat's miss in sudden death of the shoot-out saw the Amakhosi crash out of the competition, with Nyatama netting the winning kick for Highlands.
Highlands: Heugh, Mokoena, Mbhele, Fransman, Banda, Mzava, Rae, Mogaila, Shalulile, Mbatha, Motsepe.
Subs: Kapini, Nyatama, Munyai, Ramagalela, Jooste, Ramoraka, Makhaula.
Chiefs: Khune, Moleko, Sasman, Cardoso, Mathoho, Akumu, Billiat, Katsande, Nurkovic, Parker, Manyama.
Subs: Bvuma, Mphahlele, Maluleka, Castro, Baccus, Zuma, Mashiane.