With City 2-0 down and just 10 minutes remaining against Joey Barton's men, Ryan Loft recovered from an earlier penalty miss to score a late brace before netting the winning kick in a 7-6 shoot-out triumph.
Fleetwood had led courtesy of strikes from Chris Long and Conor McAleny, either side of half-time, but they were reduced to 10 men when Cian Bolger was dismissed on the hour-mark.
With competition rules stating that tied group stage matches go straight to penalties, it fell to Loft to conclude a roller-coaster night and convert the decisive penalty, collecting his side an additional point.
Following last week’s Premier League 2 victory at Derby County, in came Loft and Louis Ramsay for the Foxes, while Fleetwood's line-up only had two different faces from the side which were defeated at King Power Stadium in the Carabao Cup last month.
Goalkeeper Viktor Johansson was called into action after seven minutes in the City net as Harrison Biggins located Kyle Dempsey on the edge of the area, but his low drive was saved well.
Five minutes later, City were unfortunate not to be ahead after a smart passage of play from the Premier League 2 Division 1 leaders against Sky Bet League 1 opposition.
It landed to Kiernan Dewsbury-Hall in the 18-yard box and the young midfielder’s half-volley cannoned back off the underside of the bar before Fousseni Diabaté hit it over from the rebound.
Another opportunity arrived shortly after as Loft galloped down the left flank and first found Raúl Uche Rubio and then Diabaté but both were denied by outstanding blocks from the hosts.
However, it was Fleetwood who took the lead in the 33rd minute when Gethin Jones made progress down the right wing and found Long in the box, who slotted it past Johansson in the Leicester net.
After the break, Long turned provider for the Cod Army, sliding a smart pass from the right into the area for McAleny to cushion it into the bottom corner and double his side's advantage.
Loft Off The Mark In Style For City
Ryan Loft reflects on a night in which he scored a dramatic brace and sealed a penalty shoot-out success at Fleetwood...
On the hour-mark, Fleetwood were reduced to 10 men and City awarded a penalty after Bolger brought Loft to the floor in the area, but the City man sent it over Paul Jones' bar.
However, Loft's determination to make amends yielded its due reward with 10 minutes to play.
Calvin Ughelumba, a second half substitute, curled a fine cross into the summer signing's path and his deft finish trickled over the line to narrow the arrears.
The scores were level five minutes into added time after more dogmatic work from Loft to bundle it in - sending the clash to penalties.
Just Josh Knight, an impressive figure at the back, missed his spot-kick, with Diabaté, Hamza Choudhury, Callum Wright, Dewsbury-Hall, Darnell Johnson and Liandro Martis also converting.
That left it to Loft to write the final line of an enthralling encounter, following Dempsey's miss from 12 yards, to score the winning penalty for the Foxes.
Loft celebrates his second goal of the night in Fleetwood.
After already getting his side back into the game 15 minutes earlier, Ryan Loft's second strike was undoubtedly a dramatic moment which allowed for the heroic exploits to come.
Not deterred by a penalty miss just after the hour-mark, the 20-year-old dragged his side into the game before going one further and sealing a memorable shoot-out success for the Club's youngsters.
Knight was composed in possession for the Foxes and had the composure to make forward runs.
Josh Knight continues to excel for the Development Squad and playing alongside Danny Simpson is an experience which the Fleckney-based defender is clearly benefitting from.
Reliable at the back and a threat in advanced positions, Knight was also a nuisance for the hosts in the middle, commuting the ball assuredly into forward areas.
Where does it leave us?
Raúl Uche Rubio
Uche Rubio asks questions of the Fleetwood defence.
Securing two points instead of one, City's youngsters sit in third place in Northern Group B following this result and Rochdale's 2-1 success over Bury at Crown Oil Arena earlier in the month.
Lamine Kaba Sherif
Young midfielder Kaba Sherif shields possession of the ball in midfield for City.
Next up in the Checkatrade Trophy, the Development Squad travel to the Energy Check Stadium at Gigg Lane on Tuesday 16 October (7:45pm BST kick-off).
City: Johansson, Simpson, Johnson, Knight, Ramsay (Ughelumba 64), Choudhury (c), Dewsbury-Hall, Kaba Sherif (Martis 64), Diabaté, Uche Rubio (Wright 71), Loft
Subs not used: Davies, Shade, Leshabela, Tee
Goals: Loft 80, 90+5
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