In a stunning upset just a week out from the start of the tournament, a field goal from Italian winger Josh Mantellato two minutes from time settled an absorbing contest.
England, who are one of the World Cup favourites with Australia and New Zealand, came from six points down to lead 14-12 at the break thanks to two Sam Tomkins tries.
But the Italians, who possess a sprinkling of NRL stars including skipper Anthony Minichiello, stayed in the contest and drew level via a penalty goal before Mantellato's late drop goal.
"I'm really disappointed," said England coach Steve McNamara, whose side open the tournament against Australia in Cardiff next weekend.
"We've certainly not played anywhere near what we are capable of.
"They were fresh and ready to go. I just think our mentality was really wrong for this game.
"We were probably guilty of looking towards next week and we took our eye off this game.
"I'm glad it's happened this week in a way, rather than next week. I'm sure we will be a whole lot better for it next week ... we have to respond."
Italy have never played in a World Cup but are sure to get plenty of confidence from this result.
Minichiello, who led the Roosters to the NRL title earlier this month, said of England: "I'm sure they will be much better next week for the run, as will we.
"It was a good game for us. We've had limited amount of preparations and it will bring the team together a bit more.
"It's pretty special. The boys were pretty excited at the end."
Italy stun England in World Cup warm-up
