Gareth Southgate's men were condemned to defeat in League A Group 3 by Giacomo Raspadori's goal in the 68th minute, and a shot-shy Three Lions attack were quelled at ease by the European champions as their preparations for the World Cup took yet another hit.
A much-maligned England XI saw Southgate give Nick Pope the nod in goal over Aaron Ramsdale, while the likes of Eric Dier, Harry Maguire and Bukayo Saka were also handed starts at San Siro.
Ingenuity was not on the menu for either side in the opening exchanges, although West Ham United's Gianluca Scamacca managed to get the better of Maguire at the back post to force Pope into a save from his header.
Roberto Mancini's side hustled and harried England in the early minutes without testing Pope too much, but England also struggled to work Gianluigi Donnarumma after enjoying more possession.
With the two sides going into half time at 0-0, Friday's game marked the fifth time in a row that England had failed to score in the first half of any match - matching a profligate streak from all the way back in 1985.
Saka - who was named England's Men's Player of the Year for 2021-22 earlier on Friday - was struggling to adapt to his left-wing back role in particular, as Italy remained largely unthreatened by the Three Lions.
Concern was sparked over captain Harry Kane early in the second half, as a clash with Rafael Toloi drew blood from the Tottenham Hotspur man, but he was able to return to the field of play.
Before Kane was presented with any sort of chance to threaten Donnarumma, Italy carved their way through the Three Lions backline as Nicolo Barella poked just wide on the stretch from close range, but Federico Dimarco was offside anyway.
By the three-quarter mark, Southgate retained faith in the 11 players who started the game, but it was the reigning European champions who eventually made the breakthrough in the 68th minute.
A long ball over the top from Leonardo Bonucci met the boot of Raspadori, who got the right side of Kyle Walker and took the ball down expertly before finding the far corner from just inside the area.
England failed to close the Napoli forward down sufficiently on the edge of the box, allowing him ample time and space to unleash a powerful drive and leave Pope with no chance.
The cavalry arrived in the forms of Luke Shaw and Jack Grealish as England sought to turn the tie around, and Donnarumma was forced into a double save from Kane in the 77th minute.
Ex-Southampton man Manolo Gabbiadini was then presented with a gilt-edged opportunity of his own to wrap up a two-goal win for the Azzurri, but the legs of Pope denied him before Dimarco's effort not long after hit the woodwork.
Following the removal of a pitch invader and six minutes of added time shown on the electronic board, England continued to be kept at bay by Mancini's men, who saw Donnarumma equal to a curling Declan Rice effort.
Jude Bellingham's looping header over the top with only seconds remaining spelled the end of England's last-chance saloon, who failed to claw their way back into the game and dropped down to League B in the process.
The Three Lions - who are one of only two teams yet to score a non-penalty goal in the 2022-23 Nations League alongside San Marino - will only play for pride against Germany at Wembley on Monday.