A first-half brace from Rowan Vine and a second-half own goal from Chris Barker should have seen Town close the gap on seventh placed City, but the visitors replied through two scorching Jason Koumas strikes and a Riccardo Scimeca header.
Luton could even have ended up losing the game as Marlon Beresford produced a superb late save to deny Cameron Jerome and the Bluebirds were then denied a clear-cut penalty in stoppage time.
Hatters made changes to the side that lost 5-1 to Preston at the weekend and as the hosts adjusted to those changes, it was Cardiff who attacked from the start, forcing a corner within 15 seconds that led to Kevin Cooper letting fly with a goalbound 25-yard effort that deflected to safety off skipper Kevin Nicholls.
With Luton beginning to find their feet Vine almost latched on to a long Markus Heikkinen pass a minute later, but could only shoot at Neil Alexander on the stretch.
Alexander had to be altogether more alert to deny the former Portsmouth man in the 21st minute though when he jumped to save Vine's 12-yard volley after Kevin Foley had beaten Neal Ardley in the air from Sol Davis' lobbed pass down the left.
After twice setting his sights, Vine then found the net four minutes later as the goal Luton had been hinting at arrived.
Nicholls' free-kick from the right was half-cleared allowing Dean Morgan to volley a right-footed cross-shot back into the area and Vine, anticipating the ball, was on hand to glance into the far corner.
With the crowd still settling down from the opener, Vine then grabbed his second 60 seconds later.
The chance seemed to have gone for the 23-year-old at first as he mis-hit Carlos Edwards' lobbed pass on the edge of the six-yard box, but as Vine fell he managed to connect second time around to send the ball squirming past Alexander for his sixth of the season.
Edwards then tested Alexander before Cardiff registered their first shot on target in the 34th minute when Cooper drilled a low 20-yard effort that was well gathered by Beresford.
But it was Luton who should have grabbed a third when Ahmet Brkovic tricked his way past Darren Purse only to curl tamely at Alexander from 14 yards 11 minutes before the break.
The Hatters appeared to be in control in the second-period, but a moment of magic from Koumas ten minutes in put Cardiff back in the hunt when he intercepted Edwards' pass from defence and unleashed a ferocious right-footed effort that arrowed into the top corner from fully 25 yards.
The two-goal cushion was soon restored just after the hour when the lively Vine beat two players before his cross was sliced past his own keeper by Barker. The ball may already have been over the line, but Brkovic smashed it home just to make sure.
Cardiff came again in the 65th minute as Ardley's free-kick dropped to Jerome, who saw his fierce effort superbly saved by Beresford at point-blank range.
There was nothing Beresford could do six minutes later as Cardiff again reduced the gap as Scimeca jumped to tower a header into the bottom corner from Ardley's cross and two minutes later Town had a let-off when Joe Ledley smashed against the bar.
The Bluebirds levelled matters with five minutes to go when Koumas rifled home his second long-range effort of the night and Beresford had to deny Jerome a last-minute winner with a superb save at full stretch.
Koumas was then clearly brought down in the box in stoppage time by Nicholls, but referee Andy Woolmer let Luton off the hook by waving away Cardiff's penalty appeals.