They'll play again Saturday against South Korea, which advanced after a scoreless draw with Gabon. The other matchups in the knock-out round are: Mexico-Senegal, Honduras-Brazil, and Japan-Egypt.
In front of 70,000 fans, Chelsea striker Daniel Sturridge scored just before halftime for Britain, made up of players from England, Wales, Scotland and Northern Ireland. The home nation's unified team, whose future in subsequent Olympics is uncertain, will stay at the Millennium Stadium in Cardiff.
"We played some outstanding football," Britain coach Stuart Pearce said after beating Uruguay, a two-time Olympic champion.
The victory came on the day that Britain won its first two Olympic gold medals of the games, triggering a rush of national pride.
"We're delighted to be playing a small part in this," Pearce said.
Pearce rested 38-year-old captain Ryan Giggs, a Welsh international and Manchester United veteran. Craig Bellamy, a Cardiff native, wore the armband instead and quickly stamped Britain's authority on the game.
The winning goal came after Scott Sinclair beat a defender on the left wing. He ran toward the goal, passed to Joe Allen, who got around another Uruguayan deep in the penalty box before threading the ball to Sturridge in front of the net.
Britain finished ahead of Senegal in Group A after Moussa Kanote's tournament-high fourth goal rallied the Africans to a 1-1 draw against the United Arab Emirates at the City of Coventry Stadium.
Oribe Peralta scored a second-half winner as Mexico reaffirmed its status as a medal contender with a 1-0 win over Switzerland. Honduras continued its surprise run by drawing 0-0 with Group D winner Japan. Egypt beat Belarus 3-1 to make the last eight.
Brazil had qualified for the quarterfinals even before beating New Zealand 3-0 for a third straight win.
Brazilian coach Mano Menezes rested several of his key players, but that didn't stop Danilo and Leandro Damiao from scoring before halftime. Alex Sandro added the third at St. James' Park in Newcastle, where the team will stay for its quarterfinal. Brazil finished with 10 men after Sandro received his second yellow card in the 76th.
"We're getting stronger as the competition goes on," Brazil defender Rafael said. "Brazil always has to think of a medal. The next stage is important, if we lose, we're out. We need concentration and focus."
Uruguay was returning to the Olympics for the first time since 1928 when it won its second gold, and even with a squad packed with stars like Luis Suarez and Edinson Cavani failed to gel. But that comes as little surprise in a tournament in which Spain exited without a victory after drawing 0-0 with Morocco to finish last in Group D.
AP Sports Writer Paul Logothetis contributed to this report.