The defending champion from Crieff recorded the fastest time of the final - 95.52 seconds - but touched gate four and incurred a two-second penalty. That dropped the Scot down to fifth and out of the contention for medals.
Pennie, who was 26th on her first run in the heats on Friday, went on to qualify for yesterday's semi-final, during which she posted the fastest time (93.85 seconds) to go into the final as favourite.
However, there was to be no repeat of her victory in Krakow last year as German Ricarda Funk took gold with a clean run of 96.11 seconds.
"I was fast enough for sure, it was a pity about the touch," acknowledged Pennie. "I was just a little bit too tight going into gate four, then I got a couple of hits on the waves after that. I thought I might manage to absorb the touch a little bit and get into the medals but it unfortunately wasn't the case, everybody had upped their game for the finals.
"But it shows I'm fast enough this week and it will be good taking that home to the World Cup race in Lee Valley. Competing on my home water, hopefully I can be impressive."
Scotland's David Florence and his English partner Richard Hounslow also received penalties during their run and had to settle for seventh in the canoe doubles final. Their time would have proven fast enough to win bronze had the pair not picked up a four-second penalty for touching two gates.
Florence also failed to make the final of the canoe singles - finishing 15th in the semi-finals with a time of 93.18 seconds. Slovakia's Alexander Slafkovsky went on to take gold.
There was at least some Scottish success on the water as Kinross-born Eilidh Gibson produced the most remarkable performance of the championships to claim fifth place in the canoe singles. The teenager, who made the GB team after the selection trials at Lee Valley earlier this year, was competing at her first major championships.
She would surprise even herself by finishing fifth in the semi-finals to make her first senior international final and her rapid progress suggests that she can target Rio 2016 with confidence. Gibson also helped the GB team take gold in the canoe team event, her first major senior medal.
In the individual event, she clocked 114.91 seconds in the final after a four-second penalty and, at one stage, was top of the leaderboard with five paddlers still to go. The Scot would be edged out of medal contention as Caroline Loir of France won gold.
"I don't really think that I can believe it yet, but I'm so happy, totally delighted," Gibson said. "Coming into the event I didn't really have any expectations, I just wanted to get it through my process, and do as best as I could.
"I don't think I could have imagined I would come fifth. It gives me a lot of confidence. It's amazing to be competing with all the girls who are really good competitors. I can learn lots from them and hopefully in years to come be up there with them.
"It just gives me confidence as well for all the other races. In some of my qualification runs there are bits that didn't go right so I had to refocus and get back into the run.
"So 'refocusing' is a good philosophy that has worked for me this week. Everyone on the team, the senior athletes and all the coaches are so supportive. It's quite an honour to be in a team that's made up of world champions and European champions and Olympic medallists.
"To see how they go about that process because they have been on the team for absolutely years it's something to look up to, it's a good feeling being part of the team."