Town travelled to Chipping Sodbury on Tuesday night in the GFA Trophy.
After a good performance from a young side, the game ended 0-0 resulting in a penalty shootout.
Lydney's recent good record in these situations ended when the hosts ran out 3-1 winners.
Keeper Rich Thomas did manage to save one kick with Sam Elliott scoring our solitary spotkick.
Owen Williams, Frankie Johnson and Josh Bennai all failed with their kicks.
Town now face a must win game at lowly Burnham on Saturday and Manager Mark Lee is hoping he can select from a full squad.
Updated 19:56 - 29 Nov 2017 by Wayne Jones
The Reserves have another local derby with the short trip to English Bicknor while our `A` team face league leaders Ellwood down the Rec and the 4th team travel to Littledean