Chasing a target of 168, the hosts were cruising along comfortably at one stage but faltered at the death to give Black Caps a 1-0 series win.
The first T20 international in Visakhapatnam was washed out without a ball being bowled.
Men in Blue needed 13 runs from the last over but could manage only manage 11 in a dramatic finish which saw Virat Kohli's blazing 40-ball 70 go in-vain.
Once Kohli was dismissed was out in the 14th over, the momentum suddenly shifted as Yuvraj who scored 34 off 26 balls with a boundary and two sixes along Mahendra Singh Dhoni (22 not out) couldn't find the ropes. New Zealand's experienced T20 bowlers Jacob Oram and James Franklin used the slower deliveries to good effect.
Match in pics
It was Franklin who bowled well disguised slower delivery to clean up Yuvraj. With six required from last two deliveries, Rohit Sharma could only manage four with couple of doubles. Franklin took a bow and Indian dressing room were stunned in disbelief as to how they managed to lose this match from a winning position.
A target of 168 is respectable by any standards but Kohli started in right earnest as he hit a flurry of boundaries. He hit some lovely cover drives, a good straight drive, a lofted shot over mid-off as India scored 47 in the first Powerplay.
Gautam Gambhir came cropper as he closed his bat face to give a return catch to Kyle Mills but there was no stopping Kohli as he repeatedly found the boundary.
Kohli completed a well-deserved half century off 30 balls when he charged out to hit left-arm spinner Ronnie Heera for a boundary.
New Zealand: 167 for 5 in 20 overs (Brendon McCullum 91, Kane Williamson 28; Irfan Pathan 3/31, Zaheer Khan 1/27).
India: 166 for 4 in 20 overs (Virat Kohli 70, Yuvraj Singh 34; Kyle Mills 2/17, James Franklin 2/26).