Former Portsmouth left-back Nadir Belhadj fired the winner into the roof of the Jeonbuk net, sparking delirium among the Al Sadd players and breaking the hearts of the near-capacity crowd at the 43,000-seat Jeonju World Cup stadium.
The home side had clawed their way back into the game with an injury-time equaliser, forcing extra time, but Kim Dong-Chan and Park Won-Jae both missed their spot-kicks amid high drama in the South Korean city.
Jeonbuk, chasing a second Champions League win after lifting the trophy in 2006, came close several times in a nerve-shredding 30 minutes of extra time, but were repeatedly denied by the underdog visitors.
The victory brought an exhilarating end to a turbulent competition for Al Sadd. Abdul Kader Keita looked to have secured their second continental title with a second-half strike, until Lee Sung-Hyun's headed equaliser in stoppage time.
Brazilian Eninho had earlier put Jeonbuk ahead with a deliciously curled free-kick on 17 minutes, but an own goal by Sim Woo-Yeon levelled the scores before Keita's shot gave the visitors the lead.
Al Sadd's goalkeeper Mohamed Saqr saved two penalties, as Jeonbuk stumbled at the last after a free-scoring campaign. It was a messy but enthralling game, played in front of a raucous crowd, and vindicates Al Sadd coach Jorge Fossati's pre-match warning that his unfancied side deserved to be in the final.
"I'm very happy for him. When I returned to the club people told me he can't play any more, they said he was too old, but he played fantastic," Fossati said of his goalkeeper.
"I couldn't imagine this game would go to penalties. I was really worried to get to extra time because our physical condition was not normal after ten hours of flight. I was worried we wouldn't finish the game."
Al Sadd started brightly with strikers Mamadou Niang and Keita - both back from suspensions - impressive early on and linking with the excellent Belhadj, who terrorised Jeonbuk's right side.
Al Sadd battle back
And when Eninho scored, the expected Jeonbuk goal glut failed to materialise and Al Sadd equalised near the half-hour mark when a seemingly innocuous Keita cross squirted off Sim Woo-Yeon's head and in.
The visitors then shocked the hosts as they took the lead with a sucker-punch counter-attack. Jeonbuk surged back, hitting the post from a corner and winning a series of free-kicks in and around the box, before finally being rewarded with Lee's goal.
But despite the presence of ex-Premier League striker Lee Dong-Gook, Jeonbuk could not find a way through again and paid the price in the gripping penalty shoot-out.
Home coach Choi Kang-Hee lamented his side's profligacy, saying it cost them the game, but also suggested the great expectations on his side, who clinched the regular K-League season last week, had left them overcooked.
"It was the missed chances and some of our players also got too emotional for the game and couldn't control themselves," he said. "The fans' expectation was a very difficult situation for me. We are very sad but I tell you the players gave their very best."