Alessandro Diamanti scored the decisive kick Sunday to send Italy through to the European Championship semifinals with a 4-2 win in the shootout following a 0-0 tie with England.
Italy will next play Germany in the semifinals on Thursday in Warsaw, Poland. Defending champion Spain plays Portugal on Wednesday in Donetsk, Ukraine.
"We deserved this victory," Diamanti said. "The penalties rewarded our dominance during the match. It's only fair, we played a great match and battled from the first to the last minute."
But not until penalties by Mario Balotelli, Andrea Pirlo — with an audacious slow chip-shot down the middle of the goal — and Antonio Nocerino did the Azzurri find the net. Steven Gerrard and Wayne Rooney scored England's penalties.
The difference: Ashley Young hit the crossbar with England's third, and Ashley Cole's attempt was saved by Gianluigi Buffon.
For England, it was yet another exit from a major tournament in the quarterfinals after a penalty shootout. England lost to Portugal in the same manner at Euro 2004 and the 2006 World Cup.
"It's obviously a hard way to go out," England striker Wayne Rooney said. "And it's maybe happened too many times now."
England briefly led the shootout after Riccardo Montolivo missed Italy's second penalty. His shot went wide of Joe Hart's right post as the England goalkeeper guessed correctly.
Rooney then sent Buffon the wrong way, firing in his spot kick to the keeper's right to give England a 2-1 lead.
The momentum shifted after Pirlo's bold piece of skill levelled it 2-2.
"I just saw that the goalkeeper was moving a bit earlier so I decided to play it the other way," Pirlo said. "It just comes to you at that moment and it went well."
Not for England.
"We have done the country proud, but again we go home with heartbreak and it's difficult to take," said Gerrard, who played in both those previous shootout losses.
The match ended 0-0 after 120 minutes of play. The Italians twice hit the post, but were also let down by poor composure in front of the net. Diamanti clipped the post with a curling cross in the 101st minute, and swept a shot wide in the clearest chance of the second period of extra time.
Nocerino, another substitute, thought he had scored from Diamanti's cross in the 115th but was offside.
Daniele De Rossi hit the post in the third minute, and Buffon saved a shot from Glen Johnson in the fifth.
The first scoreless match at Euro 2012 was neither dull nor lacking good soccer.
Italy's attacking desire and creativity under coach Cesare Prandelli had playmaker Pirlo at its heart. Italy had 35 shots, compared to only nine for England.
An intriguing match almost demanded that Balotelli take centre stage. The Italy forward ran clear in the 25th, but hesitated and allowed John Terry to block his chipped shot.
Balotelli forced Hart, his teammate at Manchester City, to save an acrobatic shot, then surged between England's central defenders before putting a half-volley over the crossbar. He kicked the goal post in frustration.
Italy continued surging in the second half and De Rossi, taking a ball over his shoulder, scuffed his shot wide. De Rossi sank to his knees in obvious exasperation, and more Italian frustration quickly followed.
Three rapid-fire chances in the 52nd saw Hart beat away De Rossi's long-range shot, block Balotelli's follow-up and watch Montolivo lash the loose ball high.
England coach Roy Hodgson had to react to Italy's dominance, and sent on substitutes Andy Carroll and Theo Walcott, who both scored in a 3-2 win over Sweden.
Carroll's muscular presence created a shooting chance for Young, but England still failed to convince. Rooney made little impression after an early diving header.
De Rossi was replaced by Nocerino and the substitute threatened in the 89th. He took another crafty pass from Pirlo on the run, but Johnson tracked back to block.
Deep into injury time, Italian defensive jitters created a chance for Rooney but his overhead kick sailed high.
Then it was on to penalties. And Diamante's heroics.
"Getting to this point is a huge satisfaction," Diamanti said. "I always believed I would, even when I played in the inter-regional division — I just never told anyone, because they would have thought I was crazy."
England: Joe Hart, Glen Johnson, Joleon Lescott, John Terry, Ashley Cole, James Milner (Theo Walcott, 61), Steven Gerrard, Scott Parker (Jordan Henderson, 94), Ashley Young, Wayne Rooney, Danny Welbeck (Andy Carroll, 60).
Italy: Gianluigi Buffon, Ignazio Abate (Christian Maggio, 90), Leonardo Bonucci, Andrea Barzagli, Federico Balzaretti, Daniele De Rossi (Antonio Nocerino, 80), Riccardo Montolivo, Andrea Pirlo, Claudio Marchisio, Mario Balotelli, Antonio Cassano (Alessandro Diamanti, 78).