The Azzurri secured its second European Championship title.
Italy goalkeeper Gianluigi Donnarumma was the hero for the Azzurri in the shootout, while substitutes Marcus Rashford, Jadon Sancho and Bukayo Saka failed to convert from the spot for England.
Luke Shaw scored for England in the second minute but Leonard Bonucci drew Italy level in the 67th when England goalkeeper Jordan Pickford pushed Marco Verratti's header against the post and Bonucci pounced to slot in the loose ball.
England remains without a major trophy since 1966.