Wie, who held a 4 up lead after 14 holes of Sunday's 36-hole final, had a 25- foot birdie putt on the final hole, but left it on the edge. Tseng sank a 12-footer for birdie and the title.
'Nothing really worked out for me today from the start to the end,' said Wie, who will participate in next week's U.S. Women's Open. 'I just played terribly. I made a lot of bogeys and gave a lot of strokes away.'
Early on Wie was fine, gathering a 4 up lead, but Tseng stormed back. She squared the match with two holes to play after Wie three-putted for bogey at the 16th hole.
The players halved the 17th, but the title came down to the par-5 18th at Golden Horseshoe Golf Club. Tseng was in the rough, but had a reasonable lie. Wie elected to hit a fairway metal and knocked it in a greenside bunker. Tseng almost laid up with an iron, but decided to go with a wood and also found sand.
Wie's play out of the bunker left her with 25 feet for birdie. Tseng had half of that distance and sank her's to become the second Chinese Taipei player to win this event after LPGA star Candie Kung.
Tseng, 15, became the second youngest player to win this title after Wie won the event last year at the age of 13. Wie had a chance to become the first player since Pearl Sinn in 1988-89 to successfully defend her title.