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England stunned Italy in the first two minutes as Luke Shaw opened the scoring after Kieran Trippier floated in a superb cross.
The Manchester United left-back, who has been in scintillating form at Euro 2020, arrived at the back post and fired a volley off the inside of the post.
England fans inside Wembley erupted after Shaw handed the Three Lions a dream start against Italy in the much-anticipated final.
Roberto Mancini appeared frustrated in the opening 20 minutes as England nullified Italy's ability to control the tempo of the clash.
Italy tried to build momentum and maintained possession briefly at different spells, but they failed to break the deadlock ahead of half-time.
Federico Chiesa had arguably Italy's best chance in the first half after he managed to escape Declan Rice, darted forward and fired a low shot only a yard past the post.
England defended superbly before half-time as Ciro Immobile's strike was blocked by John Stones before Marco Verratti's follow-up shot was fired straight at Jordan Pickford.
Referee Bjorn Kuipers waved away England's penalty appeal early in the second half after Raheem Sterling danced his way into the box and went down under pressure from Leonardo Bonucci.
Pickford, who claimed the Euro 2020 Golden Glove award, was in excellent form and was called into action to deny Lorenzo Insigne.
And the 27-year-old Everton star produced a huge save minutes later to push away Chiesa's powerful low right-footed shot from inside the box.
However, Mancini's men pulled back an all-important equaliser in the 67th minute through Bonucci.
England failed to clear Italy's corner as Pickford pulled off a fantastic save to tip the ball onto the post, only for Bonucci to arrive in time to tap in the rebound.
Italy continued to improve as the final went on and dominated England in the second half after Bonucci cancelled out Shaw's opener.
Neither England nor Italy could break the 1-1 deadlock ahead of full-time as the Euro 2020 final went to extra time.
Italy came close to taking the lead in the first half of extra time after Kyle Walker missed his tackle, which allowed Emerson to cross the ball into the England box.
However, Pickford managed to land an important touch on the ball and pushed it out before Andrea Belotti fired wide with the follow-up shot.
Jorginho was lucky to avoid a red card in the second half of extra time after catching Jack Grealish in a shocking challenge.
Italy and England's nail-biting Euros final went to a penalty shootout after neither side could break the deadlock in extra time.
Domenico Berardi, Bonucci and Federico Bernardeschi all scored from the spot-kick for Italy, while Belotti and Jorginho saw their penalties saved by Pickford.
Harry Kane and Harry Maguire beat Gianluigi Donnarumma with their penalties, while Marcus Rashford missed from the spot-kick and Jadon Sancho and Bukayo Saka's efforts were saved by the Italy No 1.
Mancini's Italy captured the Euro 2020 title without losing a single clash at this summer's Euros, extending their current unbeaten run to a staggering 34 matches.
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