Mario Balotelli was the hero for Italy as the former Premier League star headed the winner against England in their Group D encounter in Manaus.
Balotelli struck early in the second half of an entertaining game to give the Italians a victory that puts them firmly in the driving seat in the group - especially after Uruguay were humbled 3-1 by Costa Rica earlier in the day.
Claudio Marchisio had blasted Italy ahead in the first half but that lead lasted only two minutes before Daniel Sturridge struck back at the end of a well-constructed move.
England manager Roy Hodgson sprung a surprise by naming Raheem Sterling in the starting line-up and playing him in a central role behind Liverpool club-mate Daniel Sturridge, with Wayne Rooney deployed on the left of a five-man midfield.
Italy, on the other hand, suffered a blow on the morning of the game when Gianluigi Buffon was ruled out through injury, with Salvatore Sirigu of Paris Saint-Germain taking his place in goal.
There was an eruption in the seventh minute when Sterling made room for a shot from distance which whistled into the net. Unfortunately for England, it was on the outside of the right post, rather than the inside - though thousands in the stadium believed it had gone in.
There were shouts for handball, led by Andrea Pirlo, against Glen Johnson as the Italians began to press, while Sturridge came within a yard of a simple tap-in when Danny Welbeck's low cross was deflected up in the air by Giorgio Chiellini and out for a corner.
However, it was Italy who took the lead on 35 minutes. A corner routine worked to perfection as Pirlo stepped over the low ball on the edge of the box and Marchisio picked it up 25 yards from goal. His first touch set him, while his second drilled the ball through a forest of legs and into the bottom corner of Joe Hart's net.
Within two minutes, England were level, and it was a superb move. Sterling picked the ball up on halfway and weighted a superb pass down the left channel for Rooney to run on to. His fabulous cross was also judged to perfection allowing Sturridge to tuck the ball home from four yards.
The goal sparked jubilation on the England bench which suddenly gave way to the bizarre scene of England physio Gary Lewin needing a stretcher to take him from the sideline with a suspected dislocated ankle sustained in the celebrations.
In first-half stoppage time, Mario Balotelli almost produced a moment of magic. Having been closed down out wide by Joe Hart, the Italian striker chipped his former Manchester City team-mate, but with the ball dropping towards the net, Phil Jagielka made a goal-saving clearing header. From the resulting corner, the ball was battered off the outside of the post by Antonio Candreva from eight yards out.
England started the second half on the front foot, with Sturridge forcing a low parry from Sirigu. However, it was Italy who made the breakthrough thanks to an inch perfect cross from Candreva that picked out Balotelli at the back post, leaving him with the easiest of tasks to head low beyond Hart.
Rooney tried to spark another equaliser with a run from midfield and shot from the edge of the box that dragged wide of Sirigu's right post. Daniele de Rossi was then forced into a good clearance from a low Glen Johnson cross that fizzed into the six-yard box.
Candreva continued to cause Leighton Baines fits on the right side of Italy's midfield and another excellent cross was gathered well by Hart with Balotelli in close attendance. At the other end, Rooney should have done better than drag his shot wide of the post after finding time and space in the Italian area from Baines' pass.
The end-to-end moments continued as De Rossi's brilliant flighted pass was brought down with a great first touch by Matteo Darmian but Jagielka and Gary Cahill combined to block. Within seconds, England were racing down the other end and substitute Ross Barkley forced a low save out of Sirigu with his first contribution of the game.
Baines tested Sirigu with a free kick from 25 yards but the keeper comfortably parried it clear while Gerrard curled a set-piece from similar distance on the opposite side of the area over the bar. An energetic burst from Sterling allowed him to get a shot away that Marchisio sliced away over his own bar.
A late free kick by Andrea Pirlo crashed off the bar with Joe Hart stranded, and the Italians were just about merited winners by the end of the game.