Alessandro Diamanti scored the decisive penalty to give Italy a 4-2 shootout victory after a 0-0 draw, setting up a semifinal match against three-time champion Germany on Thursday in Warsaw, Poland.
Mario Balotelli, Andrea Pirlo â€" with an audacious slow chip-shot down the middle of the goal â€"and Antonio Nocerino also scored for Italy.
"Tonight, we played with heart and character, but also with ideas," Italy coach Cesare Prandelli said. "Our idea of playing was extraordinary in my opinion, against a side that was difficult to play."
Italy goalkeeper Gianluigi Buffon, who saved a penalty in the shootout, left the field blowing out his cheeks in a gesture of relief. The goalkeeper was in goal when Italy won the 2006 World Cup in a shootout, though he did not save any France spot kicks that night in Berlin.
Steven Gerrard and Wayne Rooney scored England's penalties, briefly giving their team a 2-1 lead in the shootout. But Ashley Young hit the crossbar with England's third, and Ashley Cole's attempt was then saved by Buffon diving to his left.
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.
"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.
England coach Roy Hodgson said he had faith in those selected for the shootout, and recalled Cole's cool finish to help Chelsea win the Champions League on penalties last month against Bayern Munich.
"Penalties has become an obsession for us in English football and in training they have done extremely well," Hodgson said. "But you can't reproduce the tired legs. You can't reproduce the pressure. You can't reproduce the nervous tension.
"(The Italians) stood up to it better than we did. Pirlo's penalty was the perfect example."
England had briefly led the shootout after Riccardo Montolivo put Italy's second penalty wide of goalkeeper Joe Hart's right post and Rooney sent Buffon the wrong way. The momentum shifted after Pirlo's bold piece of skill leveled at 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."
The first scoreless match at Euro 2012 was neither dull nor lacking good football as Italy often outclassed a determined England side and twice hit the post, but was also let down by poor composure in front of goal. Italy finished the match with 35 attempts on goal, compared to only nine for England.
Daniele De Rossi hit the post in the third minute, and Buffon saved a shot from Glen Johnson in the fifth. It was England's first scoring chance and proved to be its best.
"Had we won it, we wouldn't have been apologizing for the victory," Hodgson said.
Balotelli took center stage for much of the match, but failed to find his target. The Italy forward hesitated and allowed John Terry to block his chipped shot in the 25th, then forced Hart, his teammate at Manchester City, to save an acrobatic shot.
Balotelli kicked the goal post in frustration after he surged between England's central defenders but put a half-volley over the crossbar.
Italy continued to attack 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, but more Italian anguish quickly followed.
Three quick 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.
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. But England still failed to convince and Rooney made little impression after an early diving header. His overhead kick deep in injury time sailed high.
Diamanti clipped the post with a curling cross in the 101st minute, and swept a clear shot wide in the best chance of the second period of extra time.
In the 115th, Nocerino thought he had scored from Diamanti's cross but was offside.
