Shrimpers boss Paul Sturrock brought on penalty-saving specialist Daniel Bentley just before the end of normal time after the tie had finished 3-3.
The gamble paid off as the sub keeper saved from Alfie Potter in the shoot-out before Elliot Benyon converted the winning kick.
Earlier, Barry Corr had bagged a double for the second time in four days. The striker followed up his brace against Brentford in the FA Cup on Saturday with two more superb efforts.
Corr put Sturrock's team in front after six minutes with a powerful header from Kevan Hurst's free-kick.
Tyrone Marsh equalised for the U's eight minutes later. Tom Craddock's header from Potter's cross was parried by keeper Paul Smith and the 19-year-old followed up with a close-range header for his first professional goal in only his second start.
Craddock then fired Oxford in front with a brilliant lob over the keeper from 20 yards following Simon Heslop's raking 50-yard pass in the 31st minute.
But Southend took the game by the scruff of the neck after the break.
They were gifted an equaliser as Luke O'Brien's poor header from Michael Timlin's crossfield pass fell invitingly for Sean Clohessy, who drilled home from 18 yards.
Just before the hour, Corr struck a classy first-time drive from 20 yards for his seventh goal of the season, only for Sean Rigg to force the penalty shoot-out by forcing in an 88th-minute corner.