The Iron boss saw his team lose 5-3 on spot-kicks following a goalless draw at Glanford Park, with substitute Sean McGinty converting the winning penalty after goalkeeper Mark Howard had saved Scunthorpe's third effort from Andy Welsh.
It was a case of deja vu for Laws, going out of a second competition this season on penalties following the same fate in the Capital One Cup at Barnsley.
"That is a bitter pill to swallow, but I was delighted with our performance," said the former Sheffield Wednesday manager. "The players were applauded off at the end by the fans who knew the effort they had put in.
"We have not lost the game as such, and we have proved again that we can hold our own against teams from a higher division.
"This was perhaps not our best performance of the season in terms of football, but it was certainly our most disciplined. There are a lot of positives that we can take out of it going into our game at Northampton on Saturday.
"I thought the players were tremendous. We created more chances than Sheffield United, but what we have got to start doing more is putting them away."
Laws was pleased with a full debut for former Owls winger Etienne Esajas, now getting back towards full fitness after a pre-season injury.
He added: "He has done well in a midfield that I was pleased with."
Scunthorpe travel to Northampton on Saturday looking for their first league win since the opening day of the season - and they have been given a boost by a return to fitness of veteran striker Chris Iwelumo.
"I could have played him against Sheffield United, but decided to hold him back for the weekend," said Laws.