Federico Chiesa opened the scoring when he curled a sublime strike past Unai Simon in the second half.
The Juventus winger hit headlines when he opened the scoring against Austria in extra time of the round of 16 win at Wembley on 26 June - the goal a lovely individual effort.
That belter was with his left-foot after he cut in from the right flank, but the 23-year-old went one better with this worldie with his right peg from inside the area at England's national stadium.
But just when Italy were looking to see the game out, Alvaro Morata, on as a substitute, levelled matters in the 80th minute.
The on-loan Juventus striker, who was even booed by his own fans in this campaign, finished calmly past Gianluigi Donnarumma when Dani Olmo put him through with an exquisite pass.
After 120 minutes of fast-paced, furious action in London, the game went to penalties.
And Morata went back to being the villain after he saw his poor spot-kick saved by Donnarumma in the shoot-out.
Having missed one earlier on in the tournament, the former Real Madrid man did not look confident one bit as he stepped up from 12 yards.
The pressure penalty then fell to Chelsea midfielder Jorginho, who nonchalantly tucked the decisive spot-kick away to send Italy fans into raptures.
Jorginho Frello shows us how to take a pressure penalty :point_down: pic.twitter.com/5oDW71fjzd- Tom Overend (@tovers98) July 6, 2021
Now unbeaten in 33 games, Italy will return to Wembley to play either England or Denmark in the final of the showpiece on Sunday.