Gonzalo Jara’s missed spot-kick gave the tournament hosts the victory in their last 16 clash and putting them through to the quarter-finals where they will face either Colombia or Greece.
The game was forced into extra time after David Luiz put the five-time World Cup champions ahead in the 18th minute before Chile’s Alexis Sanchez equalised.
Mauricio Pinilla nearly won the match for Chile, late in extra-time, when his thunderous shot came crashing back off the crossbar.
Brazil: Julio Cesar, Dani Alves, Thiago Silva, Luiz, Marcelo, Fernandinho (Ramires 72), Gustavo, Hulk, Oscar (Willian 106), Neymar, Fred (Jo 64).
Subs: Jefferson, Paulinho, Dante, Maxwell, Henrique, Hernanes, Bernard, Maicon, Victor.
Booked: Luiz Gustavo, Hulk, Jo, Dani Alves.
Goal: David Luiz 18.
Chile: Bravo, Mena, Isla, Silva, Alexis, Vidal (Pinilla 87), Vargas (Gutierrez 56), Medel (Rojas 108), Jara, Aranguiz, Diaz.
Subs: Toselli, Albornoz, Carmona, Valdivia, Orellana, Beausejour, Fuenzalida, Paredes, Herrera.
Booked: Mena, Silva, Pinilla.
Goal: Sanchez 32.
Referee: Howard Webb (England)
Brazil 1-1 Chile (AET – 3-2 pens)