Alejandro Pozuelo's dramatic 90th-minute penalty settled the Conference semi-final at Citi Field in New York.
New York's Ismael Tajouri-Shradi cancelled out Pozuelo's 47th-minute opener in the Big Apple, however, visiting Toronto had the final say after the 69th-minute equaliser.
Richie Laryea was brought down by Ronald Matarrita and Pozuelo stepped up to score the Panenka penalty.
Toronto – MLS champion in 2017 – will contest their third Conference final in the last four seasons as titleholders Atlanta United or Philadelphia Union await in the next round.
Meanwhile, Seattle Sounders defeated Real Salt Lake 2-0 en route to the Western Conference final.
After a goalless opening half, Gustav Svensson and Nicolas Lodeiro sent the Sounders through to play the winner of the El Trafico derby between Los Angeles FC and LA Galaxy.