Simone Barone scored late in the first half and Marco Del Vecchio scored early in the second securing the victory for Italy.
The event was focused around the opportunity to see Baggio, who was relegated to participating in a pre-game ceremonial first kick due to a knee injury.
"It was very disappointing because I would've liked to play here," Baggio said through a translator. "It has been 10 years since I've played here, but unfortunately (last) Wednesday I suffered an injury in my knee."
Barone got Italy on the board in the 32nd minute as he put his strike in the area up and over Portuguese keeper Paulo Santos.
Then in the 52nd minute, Del Vecchio got past a challenging Paulo Santos in the area and put the loose ball into an empty net.
Portugal would continue to press in the second half and Meira had an excellent chance in the 61st minute with a header in the area, but a diving Giovanni Galli managed to deflect it wide.
"I was very happy to be here," continued Baggio. "The energy and the warm welcome was incredible. Especially in the Italian community, they gave a lot of emotion and the first thanks is going to them. It really was incredible to come here and feel at home."
Baggio also addressed the on-going rumour that he will replace out-going Italian national coach, Cesare Prandelli. Baggio said it was just a rumour, but added changes need to be made at the top first.
"It's important now to change the head of the federation because as you know, we have to change the president, first," he said. "After, we'll see what the new lay of the land is."
Both sides exchanged numerous chances in the early going, but neither was able to find the back of the net.
Portugal had an excellent chance to open the scoring in the eighth minute as Maniche put his strike from the right side of the goal wide right.
Del Vecchio had two chances early.
In the 10th minute he put his strike off the left side of the goal. Then in the 11th minute, alone in the area, Del Vecchio struggled with a pass before finally putting his shot just wide of the goal.
Looking to even the score in the 32nd minute, Italian keeper Giovani Galli managed to stop a Fernando Meira header from just outside the area.
"It's a big pleasure any time you get a chance to play for your national team, it was really cool to play in front of so many fans especially with such a big Portuguese community here in Toronto," said Portuguese striker, Pauleta. "The Italians played really well. They always have really good defenders.
"For me, I think their goalie was the best player on the field. It would've been nice to score of course."
Monday's event is part of a weeklong attempt to cure soccer fan's World Cup withdrawal.
In addition to the Italy-Portugal legends match, on Wednesday Toronto FC will play host to the English Premiere League's Tottenham Hotspur. Current TFC striker Jermaine Defoe appeared in 274 games for the Spurs on two separate stops with the club.
Then to close-out the week, Serie A's AC Milan will kick off against Superleague Greece's Olympiacos on Thursday. Despite just returning from World Cup appearances, Italy's Mario Balotelli, De Sciglio and Abate, Japan's Honda and Ghana's Essien are all expected to participate.