Tal Selly thought he had scored the winning try, but is was ruled that he was held up and Wales had to wave the good crowd at Outeniqua Park goodbye.
Coach Phil John was a disappointed man afterwards, but refused to blame his players for their 1-4 record.
"We need to do more off the field and take the game more serious. The other teams are getting away from us. I cannot fault the players, they played their socks off. We only had four sessions together before the tournament started and that is not enough if you want to be competitive," he said.
"We could have beaten Portugal and Australia, but t we did not and that is disappointing.
At least we know where we are now and what we need to do in order to improve as the series progress. We did make progress from Dubai a week ago, but we did not achieve what we wanted," he said.
In their opening match against Zimbabwe, poor handling again dogged the Welsh effort in the opening minutes and they were made to pay for their sins when Zimbabwe scored a try after such an error.
A great run by Tom Isaacs then opened up the defence and James Lewis used his pace to score and get Wales in the game. Jason Tovey converted to put Wales 7-5 up.
Another try by Isaacs justified the improved effort by Wales on attack. They managed to string passes together and good running lines saw an much improved effort in that department.
They will still battling with the pace of the Africans though and conceded another try just before the break when they were outpaced on the outside.
Craig Hill had a great run at the restart and fed Rhodri McAtee who scored under the posts. Tovey duly converted and Wales had the momentum on their side.
Dafydd Hewitt forced his way over with defenders on his back and that sealed the game. Tovey converted and Wales were looking at their first win of the tournament.
Zimbabwe did score again and when Chris Davies was yellow carded for off-side play, Zimbabwe scored another, but Wales have done enough and won 26-24.
Wales started like a house on fire against the Aussies. A great run by Lewis resulted in a try to Hewitt and a good conversion by Tovey put his side 7-0 up.
Australia scored after a lapse in concentration on defense by Wales and when McAtee lost the ball in his own 25, the Aussies struck again to take the lead just before the break. Some weak tackling allowed them to sneak their third try and a 15-7 lead as the siren went for half time.
Australia scored soon after the restart to jump into a 22-7 lead before Wales staged a great fight back.
Selly scored and Tovey converted for a 20-14 score line with two minutes to go.
Wales needed one score to win the game and it nearly went to Selley, who chased down a kick by Tovey. Instead, Hewitt scored after a good run, but Tovey rushed his conversion. Selley then made a big dash for glory, but was held up on the line.