Claudio Marchisio gave Italy the lead in the 35th minute but Daniel Sturridge equalised just two minutes later. Mario Balotelli headed home the winner for Italy five minutes after the restart.
READ: All the minute-by-minute action
The game got off to a lively start as England showed their attacking intent from the kick-off. First Raheem Sterling had a go from 30 yards and hit the side-netting before Jordan Henderson made Salvatore Sirigu work in the Italy goal with another long-range strike.
Andrea Pirlo had a shout for handball waved away in the eighth minute following Italy's first spell of meaningful possession as the game continued to move from end to end in the early exchanges.
Sterling was looking impressive and creating openings for the Three Lions, with Danny Welbeck just unable to get onto the end of a teasing ball across goal from the teenager in the 22nd minute.
But it took until the 35th minute for the first intelligent piece of football to produce a goal. Andrea Pirlo's clever leave from a well-worked corner allowed the ball to run to Claudio Marchisio in space outside the D. The midfielder took one touch before sending a sweetly struck shot into the bottom-left corner. 1-0.
But England hit back just two minutes later when Wayne Rooney found space down the left before picking out Daniel Sturridge with a well-weighted pass to the far post, and the Liverpool striker was left with a simple finish.
The first half came to an exciting conclusion when Pirlo played in Balotelli, who rounded Joe Hart before trying to lob him, but Phil Jagielka came to England's rescue with a brilliant clearance on the line. Moments later Antonio Candreva hit the upright after Marchisio picked him out in space on the left.
Five minutes after the half-time break Italy took the lead. The lively Candreva drove down the right flank, cut back onto his left foot and sent an inch-perfect cross to Balotelli, who made made no mistake with the finish at the back post.
Rooney had a couple of efforts at goal but none of them made the goalkeeper work on a frustrating night for the Manchester United striker, who will have to wait for the next game to try and score his first World Cup finals goal.
Italy saw out the rest of the second half in relative comfort despite England's best efforts as Ross Barkley, Jack Wilshere and Adam Lallana looked to inject some more energy into their attack.
Pirlo nearly made it 3-1 in stoppage time but his expert free-kick from at least 30 yards cannoned back off the crossbar with Hart completely beaten.