The Belgian picked his spot perfectly with 14 minutes remaining, firing past goalkeeper Kevin Trapp as PSG went out of the competition in the quarter-finals for the fourth successive season.
City should have taken the lead at the Etihad Stadium in the first half when Trapp brought down Sergio Aguero to concede a penalty, but the normally lethal Argentine fired his spotkick wide of Trapp’s left-hand post.
City would have advanced on the away goals rule if the game had finished 0-0 or 1-1 following last week’s 2-2 draw in Paris, but the final scoreline just about reflected City’s superiority in a tense, dramatic match.
“Kevin de Bruyne is an important player for us, we deserved a goal before he scored. We dominated that game from the beginning until the end,” Manchester City manager Manuel Pellegrini told BT Sport.
After a bright, attacking opening from City, PSG took control and played some flowing passing football.
Coach Laurent Blanc had opted to start with a three-man back line of Thiago Silva, Marquinhos and Serge Aurier but switched to a 4-4-2 formation after Thiago Motta went off injured a minute before halftime.
Yet despite dominating possession, with Adrien Rabiot and Angel Di Maria linking well, PSG did not mount a serious attempt on goal, apart from a dipping free kick from Zlatan Ibrahimovic after 17 minutes which City keeper Joe Hart did well to tip away.
City came more into the match as their fullbacks Bacary Sagna and Gael Clichy became more adventurous and their slicker attacking approach play should have paid dividends when Aguero won the penalty.
To the horror of the home fans, however, he missed the target with his effort.
The closest PSG came to a goal in the second half was when Ibrahimovic bundled the ball into the net in the closing minutes but was narrowly ruled offside.