Maxi Curran's side looked all set to record what would have been a famous win but leading by two points going into the final couple of minutes, they conceded a late late Cavan goal and lost in the end by 2-6 to 8 points.
The win means Cavan win a fourth ulster U-21 title in a row and they now go on to meet Dublin in the All Ireland semi final.
For Donegal it was a case of what might have been. They trailed by a goal at half time 1-2 to two points, but they put in a hugely impressive performance in the second half, only to be hit by that late Cavan comeback which included an all important last gasp goal from Liam Buchanan.
Donegal Manager Maxi Curran spoke with Tom Comack after the game.