Jamal Clarke had come in to captain the side for the injured Loyiso Recci for the encounter on Tyneside, which saw the Rugby team travel up yesterday in preparation.
In front of a 1,039-strong crowd at the competition favourite's home ground, the Daren Persson Stadium, nicknamed The Morgue after their funeral director sponsors, Valley were 1-0 down at half time.
An early brilliant curling right foot finish from left back Chris McDonald gave the Rugby Town goalkeeper Ash Bodycote no chance and the hosts took the lead.
The Butlin Road side had the chance to equalise with a penalty after David Kolodynski was felled by the North Shields goalkeeper, but Edwin Ahenkorah side-footed the penalty past the post.
In the second half, the home side were awarded a penalty of their own for a harsh handball against Jamal Clarke. Shields' striker Dan Wilson rolled in the spot kick, leaving it all to do for Valley in the last 15 minutes.
Rugby couldn't find a way back into the game and so it finished 2-0, after a goal in each half. A disappointing result but the team can be proud of their efforts, having reached the last 16 of the competition.