Sidney Govou, a seven-year veteran at Lyon, and Karim Benzema, one of Lyon's young stars, were the heroes at Ibrox.
Govou gave OL the lead early in the first half, while Benzema put the game away with two late goals.
"The whole campaign has been a great achievement," said Lyon coach Alain Perrin, "and we know Rangers have a very strong record but this match was 50-50 and for us to come back shows a willingness and desire not to give up."
Rangers' French Guyana striker, Jean-Claude Darcheville, came close to tying the score but missed from six yards with the goal wide open in the 80th minute. A tie would have been good enough for Rangers to advance.
After the third Lyon goal, Darcheville was sent off for a nasty foul on Lyon's Swedish midfielder, Kim Kallstrom.
"The miss at that time was obviously an important factor," Rangers manager Alex Smith said of Darcheville's miss, "but we also had one cleared off our line just before so maybe one balances the other. I could not have complained about our second-half performance until we lost that second goal. After that the game was effectively Lyon's."