Craig Mackail-Smith's 71st minute penalty for Peterborough did neither side any good - it sent Torquay down and did little to help Posh's play-off hopes.
Torquay, who had to win, took the lead on the stroke of half-time. Their longest-serving player, left winger Kevin Hill, dived to head them in front from a flicked-on long throw by right-back Lee Andrews.
In a mistake-ridden match the Gulls also had a Chris Robertson goal disallowed for offside and referee Paul Armstrong turned down loud penalty appeals for a push on Hill.
But it was a mistake by Andrews which gave Posh their equaliser. His mistimed tackle on Jamie Day sent the left winger flying and Mackail-Smith made no mistake from the spot.
It was the former Dagenham striker's seventh goal in ten games.
Both sides then threw caution to the wind in the closing stages.
Alan White and Mackail-Smith missed good chances for Posh, while only a last-ditch save by Mark Tyler stopped Chris McPhee winning it for Torquay when sub Lee Thorpe put him through in the 85th minute.
In a frantic five minutes of stoppage-time, Torquay threw so many men forward that Peterborough several times had three or four-man advantages on the counter-attack.
But a series of brilliant saves by on-loan goalkeeper Simon Rayner from Lincoln City denied them the winner.
Ironically, it was Lincoln's 3-0 home defeat by Torquay's relegation rivals Wrexham which effectively sent the Gulls down.
Torquay's director of football Colin Lee said: "We knew we had to win, a draw was no good at home in this situation.
"We just chucked everything forward as best we could. I've never been in a relegation dressing-room before and it's not easy.
"The players have had a very, very difficult season, but at the back end of the campaign they put everything they had into it."