The Lionesses defied the odds Down Under, reaching the final of the competition for the first time ever despite injuries to key players pre-tournament.
But Spain's Olga Carmona's first half goal was enough to snatch a historic victory.
Sarina Wiegman's side huffed and puffed to try and find the equaliser, with Mary Earps saving a penalty too.
However, it wasn't meant to be for the Lionesses, who will return to England without the trophy, but with a whole generation inspired and millions filled with pride.
Many of the Lionesses were in floods of tears.
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Earps, captain Millie Bright, Lucy Bronze and Georgia Stanway were among the stars spotted crying.
Those who had remained on the bench were consoling their teammates who gave it their all but ultimately fell short.
"A lot of emotion," Bright told ITV. "Really proud of this team to come this far and to play in a World Cup final, not may players do that."It's tough to take.
"I don't think there's much you can say at the minute. Emotions are high. Huge amount of disappointment. At first you feel you've failed, you've not won.
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"But to still come second, in a couple of weeks when it settles I think we'll be really proud. This is not it for us. We'll bounce back I'm sure but for now it's hard to take."
Former Lionesses star Alex Scott saw her ex-teammate Lucy Bronze in tears and summed up how all England fans felt watching the post-match scenes.
"I was doing alright until now but seeing Lucy in those tears has got me," she told the BBC. "Someone go and put their arm around her."
Fans back home sent messages of support despite the disappointing defeat, including plenty of former footballers from both men and the women's game.
Sir Geoff Hurst, who scored a hattrick in England's last World Cup final, wrote on Twitter: "Superb campaign, not the result we hoped for but can't help feeling so proud of the squad, superb Lionesses."
Meanwhile ex-England striker Gary Lineker said: "Gutted for the Lionesses who gave their all, but congratulations to Spain on winning the World Cup. They were the better team and thoroughly deserved their victory."
"Got that horrible feeling in the pit of my stomach. But well done Spain. Worthy winners on the day. England did us proud great tournament & getting to the final was amazing," former footballer Chris Kamara said.
The defeat marks England's first competitive defeat under Sarina Wiegman.