Sidney Govou gave the visitors a crucial lead after 16 minutes and two late goals by Karim Benzema wrapped the game up for the visitors.
The result perhaps flattered Lyon but there is no doubt they deserved their win.
With the scoreline only 1-0 in favour of the visitors, and the French side looking content to hang onto their lead, Rangers missed a gilt-edged chance.
Barry Ferguson for once escaped his marker and his cross was begging to be tapped home by substitute Jean-Claude Darcheville. Yet from three yards the striker managed to shoot over.
It was an incredible miss which Lyon more than made Rangers pay for. To add to the home side's woes Darcheville was sent off in the last minute for a crude challenge on Kim Kallstrom.
Lyon totally dominated the first half against a Rangers side which appeared to freeze on the night. Govou had already missed one simple chance after Juninho's pass had split the home defence, before he opened the scoring.
From Benzema's cut-back, keeper Allan McGregor could only push the cross away, and Govou shot high into the net from six yards.
Rangers' only efforts were two well-struck shots from Steven Whittaker and Sasa Papac which Remy Vercoutre punched clear.
It was a revitalised Rangers team which took the game to Lyon in the second half. Vercoutre could only flap at Alan Hutton's cross and eventually it was cleared over the bar. It was the first sign of nerves from the visitors.
Juninho hit the top of the bar with one of his trademark free-kicks after Carlos Cuellar had been booked for fouling Jeremy Toulalan.
Rangers stepped up the pressure and Lee McCulloch tested the French keeper with a powerful long-range shot.
Just before Darcheville's incredible miss, Benzema saw his shot cleared off the line by Whittaker before he settled the tie with two well-taken late goals.