The young Magpies, despite a bright opening to the Northern Section Group H clash, fell behind in the first-half at the AESSEAL New York Stadium following Jordan Hugill's header before the Millers forward's close-range finish on the stroke of half-time doubled the hosts' lead.
Johnny Emerson halved the deficit on the hour mark, capitalising on Zak Jules' weak back pass before firing home for United's youngsters, but Esapa Osong's close-range finish restored Rotherham's two-goal cushion in the final stages.
The loss leaves Newcastle's youngsters requiring victory against Mansfield Town in their final group fixture to maintain their hopes of progressing into the knockout stages of the competition for the first time since 2018.
Rotherham, EFL Trophy winners in 2022, created the opening opportunity in front of goal as Jack Holmes latched onto Joe Hungbo's cross from the left flank but steered his headed attempt wide of the target.
Jay Turner-Cooke went close to recording his third goal of the 2024/25 season at under-21 level as the South Shields-born youngster, who spent the first-half of the previous campaign on loan at Scottish Premiership side St Johnstone, connected with Emerson's in-swinging cross but could only direct his headed effort wide of the right-hand post.
In front of 1,613 spectators, United's second-string were unfortunate not to take the lead shortly after as Turner-Cooke's inviting corner was inadvertently turned over his own crossbar by Harrison Duncan.
In the 21st minute, Rotherham opened the scoring through Hugill as the Middlesbrough-born forward, unmarked inside the box, rose high from Cohen Bramall's lofted cross before heading the ball beyond Magpies goalkeeper Aidan Harris.
Harris, who saved two spot-kicks in United's previous EFL Trophy fixture, a penalty shoot-out victory against Bradford City after a 2-2 draw, prevented Esapa Osong from doubling Rotherham's advantage, holding the Millers winger's powerful drive.
Alex Murphy, who made his Premier League debut for the Magpies in a 4-1 win against Chelsea in November 2023, went close to equalising before the half-time whistle as the Irish defender's header from Emerson's inviting cross was pushed out for a corner by Millers goalkeeper Dillon Phillips.
Despite one minute of additional time, Newcastle were dealt a difficult blow in the final seconds of the opening half as Hugill doubled his and Rotherham's goalscoring tally, controlling Holmes' low cross inside the penalty area before stabbing the ball home into the net.
United's youngsters pulled a goal back in the 60th minute through Emerson as the Scotland Under-19 international intercepted Jules' weak pass to Phillips before the Carlisle-born teenager, who signed his first professional contract with the Magpies last summer, beat the goalkeeper to the loose ball before tapping the ball into the net.
Sean Neave, introduced from the substitutes' bench, went close to making an immediate goalscoring impact as the England Under-17 international latched onto Parkinson's pass inside the box, following dangerous play between the latter and Turner-Cooke, before the 17-year-old forward's fierce effort was held by Phillips.
Harris produced a key save to prevent Ben Hatton regaining Rotherham's two-goal cushion as the Millers midfielder's long-range effort was tipped around the post by the 17-year-old goalkeeper.
In the 82nd minute, however, Rotherham regained their two-goal advantage through Osong as the Millers loanee slid onto Bramall's cross into the six-yard area before tapping home at the back post.
Newcastle United Under-21s: Aidan Harris, Ciaran Thompson, Cathal Heffernan (c), Charlie McArthur, Alex Murphy, Travis Hernes, Anthony Munda (James Huntley 62), Jay Turner-Cooke (Alfie Harrison 83), Johnny Emerson, Ben Parkinson (Darren Palmer 83), Josh Donaldson (Sean Neave 62).
Subs not used: Will Anderson, Dylan Charlton, Rory Powell.
