Roy Hodgson's men produced some good attacking football, but they emerged from their trek into the jungle with a nothing to show for it, thanks to Mario Balotelli's winner in the draining heat of Manaus.
Balotelli scored the decisive goal for the Azzurri five minutes into the second half after Daniel Sturridge had cancelled out a Claudio Marchisio effort.
At times, England looked extremely dangerous in attack. Raheem Sterling, making just his third England start, impressed inside the Arena Amazonia with his quick thinking and quick feet.
Sterling, Danny Welbeck and Jordan Henderson all went close in the first half, as both teams created decent openings.
But defensive shortcomings cost England again.
Marchisio fired Italy in front in the 35th minute, slamming a low shot into the far corner from 25 yards after Andrea Pirlo's exquisite dummy.
But England levelled two minutes later, as Wayne Rooney scampered away down the left and produced a superb ball to the back post that Sturridge side-footed home.
However, Italy regained the lead four minutes into the second half when Gary Cahill lost Balotelli at the back post, as the former Manchester City man headed in Marchisio's cross.
Rooney missed two decent chances, while Lallana was thrown on in the dying stages, but Italy held firm and nearly added a third when Pirlo hit the bar with a free-kick in added time.
England's attentions now turn to Thursday's huge clash in Sao Paulo with Uruguay, who suffered a shock 3-1 defeat to Costa Rica in their opening match