The former Sheffield Wednesday winger held his nerve as he stepped up to take the Tykes' ninth spot-kick as they clinched the shoot-out.
The result covered the cracks of an unconvincing performance from David Flitcroft's side in an encounter where they were often outplayed by their League Two counterparts.
Despite the visitors' strong start it was summer signing O'Grady who fired an early warning shot for the hosts as he cut inside and stung the palms of Sam Slocombe.
However, the Iron soon regained control and Deon Burton almost came back to haunt one of his former clubs when he fired over the top following an error by Martin Cranie.
Sam Winnall then inadvertently gave the leaky Tykes' defence a helping hand when he blocked Matt Sparrow's goal-bound effort before getting in the way of Burton's follow up.
The industrious David Perkins almost replied in fine fashion when his deflected effort looked to be heading for the top corner but Slocombe acrobatically pushed it over the top.
Despite a late siege on the Scunthorpe goal, Flitcroft's side could find no way past the impressive defensive partnership of Andy Dawson and David Mirfin as the game headed into extra-time.
United midfielder Terry Hawkridge was first to take advantage of some heavy-legged defending when he forced Luke Steele into a fine block.
But with both sides guilty of some errant finishing throughout, it seemed fitting that the lottery of the shoot-out should decide the outcome.
The Iron deservedly looked set to cause an upset when Dagnall and substitute Jason Scotland missed successive spot-kicks.
But Steele made a fine stop to deny defender Niall Canavan before O'Grady thumped home an emphatic decider.