Scotland scored 165 in 20 overs, led by Richie Berrington's 70, Matthew Cross's 45 off 36 balls, which included two sixes and two fours, and George Munsey's 15.
An entertaining knock down the order by Norman Vanua gave PNG fans some late hope. He and Kiplin Doriga added 53 off just 29 balls but having been 35/5 at that point in chase of a target of 166, PNG had left it too much too late.
Kabua Morea, PNG's top bowler, got four wickets for 31 runs in four overs, Chad Soper took three wickets for 24 runs in four overs, and Simon Atai grabbed one wicket.
PNG were all out for 148 in 19.3 overs, with Norman Vanua top-scoring with 47 off 37 balls, including two sixes and two fours, Sese Bau 24, Kiplin Doriga 18, Assad Vala 18, and Chad Soper 16.
Scotland's 17-run win was their seventh-tiniest victory in T20Is in terms of runs, and their second-tiniest victory over Papua New Guinea in T20Is.
With last night’s loss, their 2nd in the tournament, PNG will find it difficult to make it past the first round.
Papua New Guinea's 148 was their ninth-highest total in T20 internationals, their second-highest total against Scotland in T20Is, and their best total in the T20 World Cup,
They had previously scored 129 against Oman at the same site earlier in the tournament.
Kabua Morea's 4 for 31 is the greatest bowling figure by a Papua New Guinea bowler against Scotland in T20Is and the best bowling statistics by a PNG bowler in the T20 World Cup.
In their last Group B match this Thursday PNG will play Bangladesh who beat Oman by 26 runs last night.
Only the top two in their Group will advance to the next stage of the ICC.