After the goalless draw in Eindhoven just last week Rangers knew they had to keep a clean sheet or score more goals than PSV to go through to the next round.
Rangers again adopted their 5-4-1 formation and handed a European start to youngster Greg Wylde.
Everything went uphill for Rangers after just 12 minutes when Richard Foster was caught napping and a ball was put into the middle for Jermain Lens to tap in and put his side in the driving seat.
Things didnt get better for the hosts as PSV went to create most of the chances but Rangers best chances of the first half came when Wyle got down the wing and delivered an enticing ball which Lafferty couldnt connect and Whittaker was judged to have fouled the defender in his attempts to get the ball.
Steven Naismith was brought on for skipper David Weir, Rangers began the second half in determined style.
Wylde again was involved in another Rangers chance as he burst down the wing and aimed for Lafferty but the cross was intercepted by Marcelo.
Edu who was again not at the top of his game could have put Rangers level but Hutchinson who was stood on his goal line kept the ball out with his hand and no penalty was given.
The ball was quickly played up the park and as PSV countered they should have scored but Marcus Berg missed from around three yards.
Lafferty was stretchered off midway through the half, with Diouf coming on.
PSV should have killed the game when Toivonen's curling effort was matched by Neil Alexander and then he was beaten by a Dzsudzsak freekick which was excellently drilled low only to hit the post and go to safety.
David healy was brought on but was unable to find the net and Kyle Bartley was injured and it appears to be serious and he could miss future games.
So it was a dissapointing night for Rangers and Walter Smith who has managed his last game for Rangers in Europe as he will be leaving at the end of the season.
Elsewhere fellow British participants Liverpool and Man City also went out of the competition losing to Braga and Dynamo Kyiv respectfully.