Locked at 1-1 after extra-time, Ryohei Hayashi smashed home the deciding spot-kick in Toyota to send Reysol through to face the South American Libertadores Cup holders on Wednesday.
Brazilian striker Leandro Domingues gave Reysol the lead after 53 minutes, the J-League player of the year drilling a superb right-foot volley into the top corner.
It took Monterrey only five minutes to equalise, however, Chile striker Humberto Suazo ghosting into space at the far post to ram home a cross from Cesar Delgado.
Suazo had earlier rattled the post with a left-foot drive and was a constant menace but Reysol hung on to become the third J-League club to reach the Club World Cup semi-finals.
Qatar's Al Sadd beat Esperance of Tunisia 2-1 in the day's first quarter-final and will face tournament favourites Barcelona in Yokohama on December 15.
The final takes place in Yokohama on December 18.
