The midfielder tripped Troy Deeney in the Wolves penalty when there were just 180 seconds remaining of stoppage time at the end of 90 minutes.
Wolves were 2-1 up at the time. Deeney despatched the resulting penalty and Watford went on to win the game in extra-time via Gerard Deulofeu’s winner.
Belgian international Dendoncker said at first he didn’t think the challenge was deserving of a penalty.
Michael Oliver pointed to the spot and then consulted with VAR officials who agreed with his decision to penalise Dendoncker.
A heartbroken Dendoncker said he shouldn’t have touched Deeney – but didn't spot him coming.
The 23-year-old said: “At first I didn’t think it was a penalty but apparently when the VAR looked at it they decided it was, so apparently it was a penalty.
“I didn’t see him coming. I think you can say it was a stupid foul, the last seconds of the game, I think I shouldn’t have touched him, but it’s too late.”
More coverage from Wembley:
Wolves blew a two-goal lead at Wembley – they were 2-0 up with just 12 minutes remaining.
Dendoncker added: “It’s a horrible feeling. We were very close to the final.”
Head coach Nuno Espirito Santo told the players he was proud of their run to the semi-final despite the late heartache.
Dendoncker said: “Everybody is disappointed but he’s proud of what we did. It’s very sad because we were really close to it.”