In a game of few chances, Giacomo Raspadori scored the only goal with a stunning strike in the 68th minute to leave England guaranteed to finish bottom of Nations League A Group 3.
Gareth Southgate's side are now without a win or even a goal from open play in their last five matches less than two months before their World Cup campaign begins.
Friday's matchup was a repeat of last year's Euro 2020 final, won by Italy on penalties, but both teams have had their struggles since.
Italy failed to qualify for the World Cup and suffered a 5-2 loss to Germany last time out. Yet it is Roberto Mancini's new-look side who retain a chance to top the Nations League group and qualify for next year's semifinals. Italy sit second, behind group-leaders Hungary after their surprise win over Germany, going into the final round of fixtures on Monday.
Italy began the game much the stronger side and forced England goalkeeper Nick Pope into an alert save after just five minutes from a back-post header by new West Ham United striker Gianluca Scamacca.
England gradually steadied themselves after Italy's early raids forward but Southgate's side, lining up with a back three and an attacking trident of Raheem Sterling and Phil Foden supporting Harry Kane, made little attacking impact.
It wasn't until the second half that the game began to open up and England threatened properly for the first time when Foden and Jude Bellingham combined well before Kane sent in a dangerous low cross that Italy were forced to put behind.
It was Italy, though, that got the breakthrough. A hopeful long ball forward from Leonardo Bonucci failed to be intercepted by the England defence, allowing Raspadori to take it down and make space for himself on the edge of the box before firing an unstoppable effort into the far corner past the despairing dive of Pope.
The closest England came to a response came when Kane was twice denied from a tight angle by fine saves from Gianluigi Donnarumma and Bellingham headed over in the dying seconds.
After the final whistle, Southgate was booed by the visiting fans as he went to applaud them.
Midfielder Declan Rice said the team had "slipped below their standards" but claimed they had controlled the game.
"I didn't think it was all bad tonight," he said. "It's coming. It was a much better performance than we saw in the summer. It's not that we're not creating the chances. I see it in training. There are goals for fun. Trust me, we are going to be good."
Information from Reuters was used in this report.