Steve Spooner's side pushed their Everton counterparts all the way during a seven goal thriller on Merseyside but were denied the chance to progress to the competition's fifth round.
The deadlock was broken by the hosts on 23 minutes, when Callum Dyson was on hand to coolly slot the ball past Blues 'keeper Callum Preston after Nathaniel Kelly had initially blocked a Courtney Duffus strike.
Blues’ first chance came on the stroke of half-time, when an exquisite cross-field ball from Charlie Cooper released Koby Arthur down the right. The Ghanaian's cross fell to Liam Truslove on the edge of the area who saw his effort cannon off the crossbar and out of play for a goal kick.
Buoyed from that finish to the first-half, Blues came out after the break revitalised and posed more of a threat in the opening exchanges of the second period.
Their efforts were rewarded with an equaliser on 59 minutes, when a superb 20-yard curling strike from Arthur sailed past Russell Griffiths in the Toffees' goal.
The two sides continued to exchange blows, but it was Everton who would take the lead again just after the hour mark when an inviting low cross from Dyson was turned in by Duffus from four yards.
Everton substitute George Green went on to extend Everton’s lead after he was released down the left flank on 77 minutes. After outpacing Joshua Dacres-Cogley, Green unleashed a vicious left-footed shot past a helpless Preston to make it 3-1 to the home side.
Everton’s two-goal cushion, however, was short lived as Blues pulled a goal back just two minutes later. A clever back heel from Sam Deadfield set-up Kyle McFarlane who confidently side footed past Griffiths from 15-yards and bring the score to 3-2.
The hosts regained their advantage after 89 minutes with another goal from Green, which would ultimately prove decisive. A free-kick was awarded after smart work from Ryan Ledson resulted in the midfielder being bundled over 20-yards from the Blues goal. Green stepped up to curl a left-footed strike over the wall and into the top right hand corner of the goal.
Blues substitute George O’Neill capitalised on a costly slip on the edge of the Everton penalty area in injury time to make it 4-3.
Everton U18s: Griffiths, Jones, Thorniley, Kenny, Langton, Williams (Dowell 90), Dyson (Donohue 84), Ledson, C.Duffus, T.Duffus, Charsley (Green 60).
Subs not used: Hewelt, Connolly.
Blues U18s: Preston, Dacres-Cogley, Moseley, Cooper (McGee 62), Harding, Kelly, Webb (Deadfield 74), Truslove, McFarlane, Arthur, Solomon-Otabor (O'Neill 90).
Subs not used: Trueman, Bernard.