With both teams assured of progress to the second round of the Betfred Cup, city pride was the major factor at stake as the teams met for the first time since United were relegated at the same venue last year.
A crowd of 10,460 at Dens Park watched Paul McMullan give United the lead in the final minute of the half to take the sting out of the home side's half-time stunt of bringing out X Factor contestant Wagner to troll their near neighbours. But Mark O'Hara's strike denied United the outright derby victory their fans craved as the game ended 1-1.
However, goalkeeper Harry Lewis made two saves to earn United a 4-3 spot-kicks triumph.
McDonald had come on for his United debut midway through the second half, and his penalty to make it 4-3 in the shootout proved decisive, before Lewis saved Roarie Deacon's effort to secure victory.
O'Hara and Scott Fraser had efforts saved at either end as the game started in glorious sunshine but a 20-minute downpour appeared to dampen both sides' attacking edge.
O'Hara had another header saved when the rain subsided and Billy King hit the post after a one-two with Fraser as the hosts were caught out by a quickly-taken free-kick.
Scott Bain then palmed away King's 25-yard free-kick but the Dundee goalkeeper was beaten after United breached the home side's offside trap.
Kevin Holt played Sam Stanton on as Fraser slipped the ball through and the on-loan Hibernian midfielder squared for McMullan, whose angled shot trickled over the line.
The goal took the sting out of Dundee's attempt to wind their visitors up by bringing on Craig Wighton and Wagner to make the half-time draw.
Wighton had scored the last-minute winner on United's ill-fated trip to Dens Park in May 2016, and singer-for-hire Wagner's 'Dundee United's going down, down' video had gone viral around that time.
King shot wide from a difficult angle after McMullan's pace and persistence set him up but Dundee came back into it. Sofien Moussa was ruled offside as he headed Scott Allan's volley over the line but the hosts were level in the 59th minute. Deacon's pass found Allan in space and O'Hara swept home the former United midfielder's cutback.
Lewis saved well from Deacon and Holt before McDonald came midway through the half, allowing McMullan to move to his natural wide position.
The game became more stretched in the final stages and United survived two injury-time scares. Lewis saved from Deacon from close range before substitute Jack Hendry headed Holt's free-kick against the post.
Lewis saved from Faissal El Bakhtaoui in the first penalty before Bain stopped from Logan Chalmers to level matters. But McDonald netted to make it 4-3 and Lewis proved the hero as he stopped Deacon's effort.
