Darren Kenton ensured heartache for the Dons as his late deflected goal put them out after they had pulled themselves back from 3-1 down to 3-3.
David Prutton put the Saints ahead just before half-time before Claus Lundekvam put the ball past his own keeper.
Within minutes of coming on Theo Walcott set up Nigel Quashie before adding one of his own to make it 3-1.
Nicky Rizzo and Gareth Edds looked to have secured a draw before Kenton's late heart-breaking strike.
Having already been knocked out of the Carling Cup this season by Mansfield, Southampton know all about the dangers of lower league Cup upsets.
They would have been happy to go in at half-time a goal up and also with 11 men on the pitch, Chris Baird having escaped without any action when he brought down Dons striker Izale McLeod as he bore down on goal.
Just short of the hour mark Lundekvam put the ball past his own keeper Paul Smith, who replaced Antti Niemi in the Saints goal as speculation grows that the Finn is set to join Fulham.
But 16-year-old Walcott showed just why he is so in demand as he set up Quashie before adding one of his own to put the Saints two goals clear.
Walcott could easily have had more before Rizzo's deflected goal, which looked to be little more than a consolation.
But when Australian striker Edds made it 3-3, Saints' fears of another giantkilling began to grow - only to be wiped away by Kenton's deflected strike two minutes from time.
Southampton: Smith, Baird, Kenton, Lundekvam, Cranie, Dyer (Walcott 60), Prutton, Quashie, Belmadi (Folly 78), Blackstock, Ormerod (Fuller 60).
Subs Not Used: Mills, Bialkowski.
Booked: Kenton, Lundekvam, Quashie.
Goals: Prutton 40, Quashie 60, Walcott 66, Kenton 88.
Milton Keynes Dons: Baker, McClenahan (Rizzo 64), Morgan, Chorley, Lewington, Small (Kamara 90), Mitchell, Edds, Crooks, McLeod, Platt (Wilbraham 76).
Subs Not Used: Quinn, Ricketts.
Booked: Morgan, Chorley.
Goals: Lundekvam 59 og, Rizzo 79, Edds 84.
Ref: S Tanner (Somerset).