In the first European final to be played in front of a crowd in two years amid the COVID-19 pandemic, Villarreal survived a tough second half to secure a draw after extra time before going on to edge a tense shootout.
A nervy opening half-hour saw neither side fashion any real chances until Villarreal's Gerard Moreno got on the tail end of a free kick into the penalty area and poked home past David De Gea in the Manchester United goal to give Unai Emery's side the lead at half-time.
Villarreal were playing their first-ever major final and coach Emery recognised United were favourites due to their more storied history, but urged his side to "keep breaking down barriers" after four semifinal exits.
After the match, United manager Ole Gunnar Solskjaer said: "It's not a successful season of course,
"Sometimes one kick defines a season as a good one and sometimes a kick defines it's not. Nobody expected us to finish second in the league but the boys came up just short tonight unfortunately.
"Trophies matter and that's what matters at this club so no it's not a successful season. It's the short answer."
United were the better side throughout the second half, but neither side was able to find a winner in regulation and the match went to extra time.
The pace of the game continued into extra time and with no goals scored it was on to a penalty shootout to decide the Europa League winner.
The teams went back and forth in the shootout, with Villarreal keeper Rulli scoring his penalty attempt before De Gea missed his after all 10 outfield players from both teams had converted their spot kicks in the 11-10 shootout final.
The result means Man United have not won a title of any kind in four seasons, since last lifting the Europa League trophy in the 2016-17 campaign under Jose Mourinho.
Villarreal coach Emery secured a record fourth title in the competition after winning three Europa League wins with Sevilla.
"In the Europa League we have been absolutely impeccable. Since the very first moment. Some days we were coming at 6am to the stadium to prepare a game for the Sunday. All of this makes the journey [worthwhile]," Emery told a news conference.
"We were talking about enjoying these moments. In the end you are proud to reach the title [decider] but if you don't win, you are sad. Winning is another step, an important step ahead. We do this profession for these moments. We have been able to give joy to many people."
Emery joined Villarreal in July 2020, nine months after he was sacked by English side Arsenal following a poor run of results.
The Spaniard knocked his former club out of this season's competition at the semifinal stage before taking down another Premier League giant in United, but insisted he did not see the achievement as a personal triumph.
"I insist it is not a sports revenge at all. I try to enjoy every moment, winning and losing. I try to create new circumstances, so everywhere I have been, even in England at Arsenal, I have learned a lot, met many people, other cultures and football," he said.
"At the end of that story was professional frustration, but some other doors opened then. Winning today is a satisfaction, but for my club today, as it was when I was at Sevilla.
"When I was at Arsenal we played a Europa League final and could not win but it is a process, from that game I learned a lot to win this one maybe."
Information from Reuters was used in this report.