Watford 2 Wolverhampton Wanderers 1 (after extra time)
Watford captain Clarke Carlisle headed Wolves out with a 104th-minute winner.
The Hornets skipper had cancelled out Kenny Miller's opener in first-half stoppage time and he caught the defence napping once again to head Matthew Spring's free-kick past Stefan Postma from six yards. But that was harsh on Wolves, who squandered several chances.
Wolves boss Glenn Hoddle and counterpart Adie Boothroyd gave a clear indication of where their priorities lie this season as they both rested several first-choice players.
Hoddle made seven changes to the side that started against Leicester. That included Vio Ganea's first start for 18 months and Postma's debut in goal since he joined from Aston Villa, but Wolves dominated from the first kick and almost had the lead inside 50 seconds.,
Lee Naylor's free-kick found from Miller in space, but the angle and bounce of the ball forced the Scot inside and 41-year-old goalkeeper Alec Chamberlain got down to smother.
And four minutes later Wolves were in front. Seol won a dubious free kick on the right, which Naylor drove into the near post and Miller was on hand to divert the ball past Chamberlain from six yards for his second goal in the competition this season.
Postma could hardly have had a quieter start to the game and it was 26 minutes before he had to make a save from Anthony McNamee's tame shot.
But as the half went on, Wolves continued to run the match and only alert defending from former West Bromwich Albion defender James Chambers prevented Miller from doubling the lead on the half-hour.
Hornets midfielder Spring looped a header to wake up Postma on 35 minutes and, six minutes before the break, the on-loan Villa goalkeeper blocked Francino Francis's cross but Rob Edwards got back to clear Hameur Bouazza's goalbound shot.
But, despite being second-best for the opening half, Watford were level in stoppage time. McNamee's out-swinging corner found Carlisle and he rose high to head past Postma.
Hungarian defender Gabor Gyepes limped off at the break and Joleon Lescott slotted into the back four but Wolves should have regained the lead within two minutes of the restart. Mark Davies's surging run and cross was just inches away from connecting with Miller's right boot and a certain goal.
George Ndah was introduced on 74 for the tiring Ganea and should have put Wolves through three minutes later.
Miller's fizzing cross found the giant striker eight yards out but he fluffed his shot woefully wide.
Wolves almost snatched it at the death when Naylor's long throw was allowed to bounce in the box and into the path of Colin Cameron but his shot was brilliantly turned away by Chamberlain.
And the veteran keeper was again at his best three minutes into extra time when he brilliantly tipped Ndah's diving header over the bar.
But the first period of extra time was the Hornets' best of the match and, despite struggling to create any clear cut chances, they struck a minute before the extra time interval when Carlisle headed in another set piece.
And despite throwing several players forward in the dying minutes, Wolves could not force penalties and bowed out of the competition.