Croatia took the lead in the 53rd minute through Ivan Perisic, but Portugal responded when 41-year-old captain Cristiano Ronaldo calmly converted a penalty in the 68th minute to level the score.
Just as extra time appeared inevitable, Gonçalo Ramos headed home the winner deep into stoppage time. Croatia thought they had snatched a dramatic equaliser moments later through Joško Gvardiol, but VAR ruled the goal out for offside, sealing Portugal's passage.
After the final whistle, Ronaldo paid an emotional tribute to his late Portugal teammate Diogo Jota by holding up and wearing a Portugal shirt bearing Jota's No. 21. The Liverpool forward died in a car crash almost exactly a year earlier, on July 3.
"We knew it before the game. It was such a special moment. We spoke about it today as a group. The coincidence of life is unbelievable," Ronaldo said.
"It means a lot to us, not only because we won the game, but because of the way we won it. It was a difficult match, and we knew it."
Ronaldo's penalty made him the oldest player to score in a World Cup knockout match, as Portugal now prepare to face European champions Spain in the last 16.
Earlier, Spain produced one of the tournament's standout performances, defeating Austria 3-0 in Los Angeles.
Mikel Oyarzabal scored twice, while Pedro Porro added another as Luis de la Fuente's side dominated from start to finish, with Austria failing to register a shot on target.
"We played a magnificent match. In every aspect, we came close to perfection," De la Fuente said.
Spain will now meet Portugal in one of the most anticipated ties of the round of 16.
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