Despite our best efforts, a brace from Djeidi Gassama either side of half-time and a late third from Wilson Odobert was enough to hand the visitors all three points in Group A.
And with Club Brugge’s earlier victory over RB Leipzig in the group’s other fixture, City are now an unassailable six points off the qualification places with one game to play.
It was the visitors who carved out the first clear-cut chance of the match, with Mikki van Sas producing a fine save to thwart Gassama after the winger had broken free down the left inside 14 minutes.
And the PSG forward went close once again just before the half-hour with van Sas recovering in the nick of time to prevent his header from crossing the line after Moutanabi Bodiang’s initial effort had deflected to the far post.
It was a similarly close call for PSG stopper Lucas Lavallee soon after, when he recovered just in time to prevent Nico O’Reilly from pouncing after initially spilling Kayky’s inviting ball in from the right.
O’Reilly then went close with snapshot from a free-kick, but with bodies committed forward, City were stung by a devastating PSG counter.
Xavi Simons burst forward down the right and, rather than try his luck on the angle, squared the ball to Gassama for a simple tap-in.
Brian Barry-Murphy’s men were thankful for our goalkeeper moments later, when van Sas pulled off a world class save to tip Edouard Michut’s effort from distance over the bar.
Undeterred, City instantly searched for a route back into the game, with strong claims for a penalty on the stroke of half-time waved away after Kayky went down after dancing his way to the by-line.
And there was still just enough time for the hosts to go close once again, with O’Reilly a matter of inches from guiding home the equaliser with his knee after getting on the end of a vicious cross from the left.
It was a similar story after the restart, with O’Reilly this time stinging the palms of Lavallee after being threaded through by Rico Lewis’ rampaging run from deep.
But PSG’s second followed soon after, with Gassama smashing home at van Sas’ near post after twisting and turning his way into the box from the left.
Dan Ogwuru entered the fray just before the hour as City looked to spark a comeback, and the forward forced Nehemiah Fernandez into an excellent last-ditch challenge when given his first real sight of goal.
And Lavallee was called into action once again with 25 to play when he was forced to tip CJ Egan-Riley’s deep corner away from danger as it threatened to swing into the top corner.
But with City pressing for a route back into the game, the Parisians stung us once again on the counter-attack with ten to play, Wilson Odobert coolly slotting home after Gassama had broken free.
Our youngsters refused to give in and were rewarded for our efforts soon after when Lewis tapped home to hand the hosts a glimmer of hope.
Finley Burns turned a scrambled effort just past the post from a stoppage time corner as City continued to battle to the end, but it was to no avail under the Academy Stadium lights.
How we lined up
Kayky and Josh Wilson-Esbrand started on the flanks, with Nico O’Reilly operating through the centre at the sharp end.
City XI: van Sas, Egan-Riley, Burns, Mbete (C), Lewis, Lavia (Susoho 83’), Charles (Oduroh 83’), O’Reilly (Ogwuru 59’), Kayky (Mebude 72’), Bobb, Wilson-Esbrand (Tarensi 83’)
Subs: Slicker, Taylor
PSG XI: Lavallee, Bodiang (C), El Hannach, Fernandez, Muntu Wa Mungu, Kari (Weidmann 79’), Zaire-Emery, Odobert (Noireau-Dauriat 85’), Michut, Gassama (Gharbi 85’), Simons (Yansane 68’)
Subs: Bitshiabu, Najeh, Randriamamy
What it means
City bow out of the UEFA Youth League Group Stages following defeat to PSG.
Brian Barry-Murphy's men are guaranteed to finish third, with RB Leipzig at the foot of the table having lost all five of their matches thus far.
Victory for PSG means it's a straight shootout between themselves and Club Brugge for top spot when they meet in two weeks' time.
City's youngsters are back in Premier League 2 action on Monday evening, playing host to Leeds United at the Academy Stadium.
The match gets underway at 19:00 (UK) and is available to watch live with a CITY+ subscription.
City’s next involvement in the UEFA Youth League comes on Tuesday 7 December, when we face RB Leipzig U19s at 12:00.
News about Man City v Paris Saint-Germain
Barry-Murphy: The lads gave everything in PSG defeat
Manchester City’s Elite Development Squad boss Brian Barry-Murphy couldn’t fault his players’ efforts despite our 3-1 UEFA Youth League defeat to Paris Saint-Germain. Read more.
City v PSG: Live match commentary available on Man City app
Man City app users will be able to access full match commentary for our Champions League game against Paris Saint-Germain on Wednesday night. Watch more.
City EDS v PSG U19s: Full-match replay
Relive every kick of our UEFA Youth League clash with Paris Saint-Germain on CITY+. Watch more.
City 2-1 PSG: Match stats and reaction