Balotelli came under severe scrutiny after the 1-1 draw against Poland after failing to make a notable impact from the bench.
As such, the 28-year-old has been dropped from the Azzurri's, along with six other players.
Juventus' Daniele Rugani, Cristiano Biraghi, Pietro Pellegri, Lorenzo Pellegrini, Nicolo Zaniolo and Davide Zappacosta are the other names excluded from the trip to Portugal.
"It happens that you can have a bad game," Mancini said after naming the squad. "When you play well, you get lots of praise and if you don't play well, you get a lot of criticism and it's just part of being a footballer.
"Everybody sees the game they want to, and frankly, I'm not worried."
Italy's squad in full:
Goalkeepers: Gianluigi Donnarumma, Mattia Perin, Salvatore Sirigu.
Defenders: Leonardo Bonucci, Mattia Caldara, Giorgio Chiellini, Domenico Criscito, Emerson Palmieri, Manuel Lazzari, Alessio Romagnoli.
Midfielders: Nicolo Barella, Marco Benassi, Bryan Cristante, Roberto Gagliardini, Jorginho.
Forwards: Andrea Belotti, Domenico Berardi, Federico Bernardeschi, Giacomo Bonaventura, Federico Chiesa, Ciro Immobile, Lorenzo Insigne, Simone Zaza.