Despite making a bright start to their penultimate Group D encounter, the young Magpies trailed shortly after the half-hour mark at the Attis Arena following Aramide Oteh's slotted finish.
In a contest lacking a number of clear-cut goalscoring opportunities, Declan Howe's clinical strike doubled the Iron's lead in the closing stages, with Newcastle requiring a victory against FC Halifax Town in their final group game, taking place in a fortnight's time, in order to progress into the quarter-finals for a second consecutive season.
Adam Lawrence made six changes from the side which suffered a 2-0 home defeat against Paris Saint-Germain in the Premier League International Cup as Harrison Ashby, who spent last season on loan at Queens Park Rangers, was named in the starting XI while Leo Shahar and Rory Finneran replaced Scott Bailey and Anthony Munda in the middle of the park, with the pair both serving a one-match suspension.
Targeting a third successive win in the competition's group stage after triumphs over Gateshead and Boston United, the visitors almost got off to a flying start as Joe Brayson raced onto Ashby's excellent threaded pass but the 18-year-old striker, who signed his first professional contract with his boyhood club last summer, saw a first-time effort at goal blocked by Scunthorpe goalkeepr Louis Jones before the ball dropped wide of the left-hand post.
Newcastle's positive start continued as Leo Shahar's teasing corner into the six-yard area was inadvertently headed towards goal by Scunthorpe skipper Tyler Denton, with the ball flying narrowly over the crossbar.
United's youngsters fell behind in the 33rd minute as Oteh broke the deadlock for the Iron with their first shot on target, racing onto Kian Scales' pass in behind the Newcastle defence before slotting the ball beyond advancing goalkeeper James Taylor.
Newcastle's second-string were unfortunate not to swiftly equalise after their setback, with Brayson heading wide inside the box following Sam Alabi's in-swinging cross from the left wing before Scottish defender Charlie McArthur's header from Shahar's inviting free-kick towards the right flank bounced into the ground before rising narrowly over the bar.
Scunthorpe, currently occupying sixth spot in the National League, almost doubled their advantage before half-time as Ivorian centre-back Jean Belehouan completed a marauding run from defence before drilling a fierce effort wide of the left-hand post.
Newcastle went close to levelling the cup clash after the restart as Alabi and Alfie Harrison combined neatly in a dangerous position before the latter, who joined the Magpies from Manchester City in February, unleashed a low drive from the edge of the box beyond the far right-hand post.
The visitors survived an almighty scare after the hour mark as Scales rattled the woodwork for the hosts, rifling a vicious long-range effort off the crossbar before Scunthorpe substitute Zain Westbrooke hammered the rebound over the crossbar.
Newcastle's hopes of securing a positive result took a heavy blow in the 80th minute as Scunthorpe extended their lead through Howe's clinical finish, who broke into the penalty area before smashing a powerful effort beyond Taylor.
Newcastle United Under-21s return to National League Cup action on Tuesday, 16th December when facing an away trip to FC Halifax Town at The Shay (kick-off 7pm GMT).
Newcastle United Under-21s: James Taylor, Harrison Ashby, Dylan Charlton (Thomas Bryant 71), Charlie McArthur, Cathal Heffernan (c), Rory Finneran (Darren Palmer 85), Alfie Harrison, Leo Shahar, Joe Brayson (Kacey Wooster 62), Sam Alabi (Matheos Ferreira 71), Seung-soo Park.
Subs not used: Ciaran Thompson, Adam Harrison, Baran Yildiz.
