The Mexican side grabbed a dramatic victory in the final minute of time added on.
Major League Soccer's Dallas looked to have forced extra-time after Cristian Colman scored in the 86th minute to level the game at 3-3 on aggregate.
But the Mexicans grabbed a dramatic victory in the final minute of time added on Lozano lofted a chipped pass into the Dallas penalty area with the intention of picking out Victor Guzman.
Guzman was unable to get on the end of the pass however and it bounced through a crowded defence past Dallas goalkeeper Chris Seitz.
It was a cruel defensive lapse from Dallas, who had battled gamely as they attempted to defend a 2-1 lead from the first leg.
The MLS side successfully frustrated Pachuca for long periods of the first half, and the Mexicans were made to wait until the 38th minute before levelling the tie on aggregate.
Uruguayan winger Jonathan Urreta curled a cross in from the right flank and Franco Jara stooped to nod home at Seitz's near post.
Lozano then made it 2-0 in the 80th minute, lashing in a powerful shot from outside the area that flew past Seitz to leave Pachuca 3-2 ahead on aggregate.
However Colman's looping header four minutes from time made the tie level on aggregate, raising the prospect of extra-time and penalties.
But with the seconds winding down, Lozano' late strike deceived Seitz and Pachuca had advanced.
FC Dallas were aiming to become the first MLS team to win the CONCACAF Champions League in 17 years. The last American club side to win the top club tournament for teams from the region was the Los Angeles Galaxy in 2000.
Mexican teams have dominated the tournament in recent years, winning the last 11 titles stretching back to 2006.