Striker Mario Balotelli, whose mercurial talent and off-field antics have generated admiration and scorn, scored two superb goals in a 2-1 semi-final victory over fancied Germany on Thursday that secured a Euro 2012 final place against Spain.
Italy, who won their only European Championship in 1968, snapped Germany's 15-match winning streak in competitive games and prolonged an agonizing 17-year period for the Germans without a win over the Italians.
Balotelli, long criticized for not realizing his full potential, drilled in a header in the 20th minute from an Antonio Cassano cross, then struck again in the 36th minute to thunder in an unstoppable shot after a deft first touch.
Germany midfielder Mesut Ozil gave the 15,000 German fans in the stadium some consolation when he converted a penalty in added time after Federico Balzaretti had handled in the area but Italy held on.
"He's brilliant," coach Cesare Prandelli said of the forward. "The career of Mario Balotelli has only just begun."
The streets of Rome filled with cheering fans and hooting cars, while motorcyclists circled round and round the colosseum waving the Italian tricolor.
In the city's Piazza del Popolo fans lit colored flares, waving flags and chanted in unison "Grazie Balotelli".
Germans supporters had outnumbered Italian fans in Warsaw almost three to one but they filed out of the stadium in shock after their dreams were shattered by Italy again, six years after the Azzurri ended their World Cup hopes in the last four on home soil.
Joachim Loew's young side had looked strong in the tournament, but met their match in Italy.
"It is very difficult against a team like Italy to fall behind 2-0. They defend with everything they have," Loew said.
"There are tears in the dressing room. It is dead quiet... no one is saying anything and they are sitting on their chairs with their heads hanging. You can imagine that they are so deeply disappointed after a match like this."
Germany were without "lucky charm" Chancellor Angela Merkel, who cheered them on wildly during their 4-2 quarter-final victory over Greece in Gdansk. Merkel is busy in Brussels at a European Union summit.
The final in Kiev against holders Spain, who dispatched Portugal on penalties in a Donetsk nail-biter on Wednesday, will pit two teams against each other who drew 1-1 in the group stage of the tournament in Gdansk on June 10.
UEFA said on Thursday it had fined the Spanish football association 20,000 euros ($24,900) for racist chants and other racist behavior by its fans during that match, in which Balotelli had started.
The Russian football association was also fined 30,000 euros after being found guilty of the same charge in the Group A game against the Czech Republic in Wroclaw on June 8.
The Russian FA had already been fined three times for fan trouble at the tournament, including supporter violence.
Balotelli was also subjected to racist abuse by Croatia fans during a match on June 14 and the Croatian FA was fined 80,000 euros by European soccer's governing body.
Hosting its last match of Euro 2012, Poland had been on a higher alert level as a precaution after a border patrol found explosives on a raft on a river on its border this week.
There have been no major security incidents during the three-week tournament, although Polish police were criticized for allowing street fights between local hooligans and Russian fans before their June 12 clash.
(Additional reporting by Naomi O'Leary in Rome and Erik Kirschbaum in Berlin; editing by Justin Palmer)