The Ligue 1 club will take three away goals into the last-16 second leg after Geoffrey Kondogbia, Dimitar Berbatov and Yannick Ferreira-Carrasco scored to secure Monaco a 3-1 win at the Emirates.
Oxlade-Chamberlain had given the Gunners hope when he made it 2-1 in injury time, only for the winger to lose possession to Ferreira-Carrasco in the dying seconds to restore the principality's two goal lead.
And Wenger admits the third goal could prove to be a killer blow for his side, who must win at least 3-0 at the Stade Louis II if they are to progress to the quarter-finals for the first time since 2010.
"The third goal makes our task extremely difficult in the second leg," Wenger said.
"It looks like we lost our nerve and our rationality on the pitch.
"The heart took over the head and that doesn't work."
