Tamas Priskin bagged his first goal for Town but Blues went out of the Carling Cup after defeat at London Road.
The frontman struck early on as Town started brightly, converting Pablo Counago's cross.
Priskin could and should have put Blues in total command soon after but failed to beat Joe Lewis from the penalty spot after he had been pulled down in the box.
Peterborough equalised just after the half hour through a wonder strike from Lee Frecklington and Darren Ferguson's side won the game when George Boyd's shot evaded Richard Wright at his near post midway through the second-half.
Roy Keane made six changes to the side that went down at West Brom at the weekend, with Counago coming in for his first game of the campaign after recovering from a groin injury.
Priskin teamed up with the Spaniard in a new look front pairing and the combination didn't take long to make their mark, Counago crossing for the Hungarian international to net on 15 minutes.
Craig Makail-Smith saw an effort blocked by Pim Balkestein on the edge of the box, the Town defender having to watch every tackle after picking up a yellow card in the first few minutes.
Frecklington smashed a shot high and wide and was then denied by Richard Wright before Alex Bruce became the second Blue to be booked after a foul on Aaron McLean.
Town had a gilt edged chance to extend the lead midway through the half, Bruce's free-kick ended up Priskin's feet and he went down under a challenge from Gabriel Zakuani but the recent signing from Watford was denied a second-goal, with Lewis making the save from the penalty spot.
Alan Quinn sent a free-kick over from 25 yards after Counago had linked up with Lee Martin, the former Manchester United player brought down 20 yards from goal.
Wright saved from Boyd but on the half hour Peterborough were level, Frecklington's turn taking him away from Jack Colback and then beating Wright with a fantastic strike from 25 yards.
Counago forced Lewis into action with a shot from distance but Posh should have been ahead seven minutes before the break, Frecklington failing to beat Wright from close range from McLean's cross.
Priskin failed to test Lewis from Damien Delaney's excellent cross with the last chance of the half.
Tommy Rowe became Peterborough's first booking for a foul on Bruce, Martin sending the free-kick over the bar. Town then making two changes with Counago and Priskin making way for Jon Walters and Connor Wickham on 54 minutes.
Peterborough edged ahead 10 minutes later, Boyd beating Wright at his near post and it could have been three for the home side soon after, the Town 'keeper doing brilliantly to get a hand to McLean's strike and diverting it just wide.
Shaun Batt became the fourth player to go into referee Rob Shoebridge's notebook after catching Martin as Town looked to break, the wideman making way for Ed Upson soon after.
Wickham was unlucky not to test Lewis with a spin and turn inside the Peterborough box as Blues pressed for an equaliser, Quinn then forced away from danger as he threatened to strike from 15 yards.
Town were inches away from an equaliser as the game entered the last minutes, Rowe heading the ball off the line from Quinn's corner.
Richard Wright came up for a corner as Blues threw everything at the home goal and it took a terrific challenge by Colback to prevent Boyd scoring from 30 yards with the Town goal unguarded.
Colin Healy had a final opening for Blues but couldn't make it count as a final blast from referee Shoebridge brought an end to Town's Carling Cup hopes for another year.
Peterborough: Lewis, Martin, Morgan, Zakuani, Rowe (Pearce 90), Batt (Lee 86), Frecklington, Diagouraga, Boyd, McLean, Mackail-Smith. Subs not used: McKeown, Mills, Green, Keates, Torres. Booked: Rowe, Batt
Town: R.Wright, D.Wright, Balkestein, Bruce, Delaney, Martin (Upson 71), Colback, Healy, Quinn, Counago (Wickham 54), Priskin (Walters 54). Subs not used: Trotter, Lee-Barrett, Smith, McAuley. Booked: Balkestein, Bruce.




















