Luciano Spalletti's side struggled to lay a glove on a well-oiled Swiss machine that outclassed the Azzurri in all departments en route to a comfortable victory at the Olympiastadion in Berlin.
Without suspended defender Riccardo Calafiori, Italy fell behind in the 37th minute when Remo Freuler - on loan at Bologna last season - fired a shot past Gianluigi Donnarumma at his near post.
Italy were hoping to burst out of the blocks and put their stamp on the contest after the break, but Switzerland doubled their advantage just 27 seconds after the restart courtesy of a stunning strike from Ruben Vargas into the top corner.
Spalletti threw on Mateo Retegui to join Gianluca Scamacca and Federico Chiesa in attack, but Italy's powderpuff attack could only register one of their 11 shots on target and crashed out at the last-16 stage in disappointing fashion.
Italy slammed by former England trio
Italy, four time world champions, were celebrating their second European Championship triumph just three years ago, beating England on penalties in the final at Wembley Stadium.
Spalletti replaced Roberto Mancini in September last year, but he has since won only 50% of his games in charge, while the Azzurri's underwhelming performances and alarming lack of goal threat at Euro 2024 have led to widespread criticism.
Following Italy's loss to Switzerland, shown in the UK on BBC One, former England striker and presenter Gary Lineker said: "I don't think I've witnessed, in my lifetime, a worse Italian team than this."
Former Three Lions striker and BBC pundit Alan Shearer added: "From three years ago to this, it's incredible. I was really shocked at how bad Italy were. They offered nothing in any position, Switzerland toyed with them.
"They dominated that game and didn't give Italy a chance. Up top they were so weak, they offered nothing in front of goal. There was no threat. They were so poor, particularly in forward positions."
Another ex-England international, Rio Ferdinand, said: "They've been shambolic, almost. It's like they've not got one answer or solution for any scenario that's come up in this game today. Questions are going to be asked of Spalletti, I'm sure."
Spalletti: 'I'm convinced I have to change things now'
Spalletti was questioned about his future as Italy manager after the match, telling reporters: "That question is only natural, don't feel guilty about asking me, but that comes to the crux of the matter, it doesn't change anything for me.
"I have the responsibility for what has happened. I picked the players, and of course this is part of a process where I need to get to know players."
"Having tried out a number of things over the course of this experience, I do come away with the notion that I have to change things, I'm convinced that I have to change things now," the 65-year-old added. "It's not a scandalous result as now you're trying to depict it to be.
"And when I'm told that we produced a scandalous performance against Croatia... no, no, I'll say no. Today we were under par, against Spain we were under par, but not against Croatia. We made it through a tough group. Deservedly so."
Italy have exited the European Championship as early as the last-16 stage for the first time since 2004 when they crashed out in the group stage.