The 31-year-old was at fault for Lionel Messi's opener at Camp Nou as Barca beat City 2-1 on the night and knocked them out of the Champions League with a 4-1 aggregate scoreline.
And Mills, who was at Man City for five years, singled Lescott out as City's weak link at the back - along with 33-year-old Martin Demichelis, who was suspended for the second leg after getting sent off in the reverse fixture.
"City have done well but Martin Demichelis cost them in the first match and tonight it was Joleon Lescott," Mills said on BBC Radio Five Live.
"They are just not good enough at this level and City need to address that in the summer.
"They are just not Champions League players. Lescott was lucky in the first half and he always has a mistake in him."
Mills also criticised Manchester City for not spending big money to recruit a centre-back worthy of partnering Vincent Kompany last summer.
"City should have gone out and spent £20m on a quality centre-half, not the £4m they spent on Martin Demichelis," he added.
"You need to pay for quality. They should have spent big, they knew they had big important games coming up but they did not address it."
Unfortunately for 31-year-old Lescott, his misery was further compounded by England manager Roy Hodgson being in the stands at Camp Nou to watch his error.
The former Everton defender may take solace in the fact that he was up against one of the best players in the world - but that may not be enough to impress Hodgson or City boss Manuel Pellegrini.
Do you agree with Mill's comments about the Man City defender?