Australia were bowled out for just 111 while chasing a target of 288 on the fifth day, handing South Africa a 2-1 series victory after the visitors had taken an early 1-0 lead.
Waugh, who was part of the Australian team that completed a famous run chase at Newlands in 2002, was particularly disappointed with the shot selection and execution displayed by the current batting line-up.
“That was a terrible two hours of batting. That was immature … it was terrible,” Waugh said during television commentary.
“The shot selection, the technique and the execution was not good enough.”
His criticism followed an equally fierce assessment from former Australia opener David Warner, who described the performance as disgraceful and un-Australian.
“I'm just upset, it's terrible, it's un-Australian. There's no fight whatsoever, it's disgraceful,” Warner said.
He also accused the batters of letting the bowlers down throughout the series, questioning their approach during such an important run chase.
Rabada and Harmer destroy Australia's hopes
Australia's chase suffered an immediate setback when Kagiso Rabada removed Matt Renshaw and Marnus Labuschagne during his opening over, putting the visitors under enormous pressure.
Rabada continued to trouble the Australian batting order, while Simon Harmer produced a devastating spell of spin bowling to finish with six wickets for 16 runs.
Josh Inglis, who had scored a century in Australia's first innings, was run out for four following a costly mix-up with Cameron Green.
Green was one of the few Australian batters to reach double figures, scoring 27, while Travis Head made 14. Four Australian players were dismissed without scoring as the innings fell apart.
Australia eventually managed just 111 in 57.1 overs, with Harmer taking the final wicket to complete South Africa's victory.
Cummins admits Australia must improve
Australia captain Pat Cummins acknowledged that his team needed to improve following the disappointing series defeat.
Asked about Warner's criticism, Cummins admitted he was unsure how to respond but accepted that questions about the team's performance were justified.
The Australian captain also indicated that changes could be considered as the team looks to rebuild ahead of its upcoming home Test series against New Zealand.
The defeat represents a significant setback for Australia, who had entered the series hoping to maintain their position among the leading Test teams.
For South Africa, the victory completed an impressive comeback after losing the opening Test, securing a 2-1 series triumph and strengthening their position at the top of international Test cricket.
The result has also intensified questions about Australia's batting depth, with the selectors facing important decisions ahead of a demanding schedule of international cricket.