The teams were tied 1-1 after regulation and two 10-minute overtime periods forcing the PKs.
The second-seeded Hoosiers won for the 10th time in 11 games and earned their seventh NCAA title the first under coach Mike Freitag who replaced Jerry Yeagley this season.
Yeagley retired after the 2003 Men's College Cup finishing with a Division I record 544 victories in 31 seasons.
Each team converted two penalty kicks before Indiana's Mike Ambersley slipped a shot under the crossbar to put the Hoosiers ahead.
Nate Boyden tried to fake Nolly out of position on Santa Barbara's final kick but Nolly dived to his left and deflected the shot away.
Before Boyden's kick Nolly dived to his right blocking a shot by Tony Lochhead.
John Michael Hayden and Greg Badger also converted for Indiana. Drew McAthy and Ivan Becerra made penalty kicks for the ninth-seeded Gauchos (21-3-1).
The Gauchos had the best scoring chance in overtime but Andy Iro headed Lochhead's corner kick over the crossbar from 6 yards in the 102nd minute.
McAthy tied the game in the 82nd minute with his third goal of the Men's College Cup and his 18th of the season. Unmarked McAthy secured the rebound of Ivan Becerra's blocked shot and scored inside the left post from 8 yards. The goal made McAthy Santa Barbara's career scoring leader with 115 points.
Jacob Peterson gave Indiana a 1-0 lead in the 27th minute. Jed Zayner sent a long pass to Peterson who beat Iro and stretched his right leg to volley the ball just outside the 18-yard penalty area.
Gauchos goalkeeper Dan Kennedy charged forward and deflected the ball with his right hand into an open net. Nolly was named the most valuable defensive player and McAthy was the most valuable offensive player.