After Alvaro Morata was thwarted by Gianluigi Donnarumma, Jorginho scored a decisive kick off Spain keeper Unai Simon and Dani Olmo destroyed his attempt on the bar.
Spain's twin misses ousted Manuel Locatelli, who had saved his strike with the first kick of a shootout by Simon, and Italy's substitute and coaching staff stormed the pitch to celebrate in front of their enthusiastic supporters behind the goal. said.
Italy, who will play either England or Denmark in Sunday's final at Wembley in their first showpiece since a 4-0 loss by Spain at Euro 2012, are looking to win the tournament for the first time since 1968.
Roberto Mancini's side took the lead on the hour to complete a wide counter-attack via a sensational curler from Federico Chiesa, which began with keeper Donnarumma catching the Spaniard's cross and out the ball.
Morata equalized for Spain with 10 minutes remaining, slipping calmly into the bottom corner, bursting ahead and exchanging a one-two with Olmo.
Spain looked more likely to find a winner in the remaining minutes and in extra time, but could not manage a second shootout win after a win against Switzerland in the quarter-finals.
Italy avenged their shootout loss to Spain in the Euro 2008 quarter-finals and their stunning defeat at the Euro 2012 final, and completed their second consecutive European Championship win over the Spaniards after their 2–0 last 16 win at Euro 2016.
Wembley's capacity was increased to 60,000 and although coronavirus restrictions barred fans from traveling abroad, expatriate communities from both countries came out to pack each end behind the target and created a heated atmosphere, which left the international community behind. Enhanced the spirit of opportunity between the two titans of football.
Spain midfielder Sergio Busquets said after the match: "It's a pity. We didn't want our tournament to end today but with more titles on Sunday. It shouldn't have happened."
"It's football. I think the team did well. We had opportunities, controlled the game. We showed a lot of pride. It's a shame. Penalty shootouts are like this.
"Everyone considered Italy the favorite but we showed that we were better than Italy. It's a shame. We didn't deserve to go back. We can only congratulate Italy and continue on our way."
Chiesa later applauded the result.
"Spain were great, they have star players but we fought till the end and we did it," said Italy's Chiesa.
"When Locatelli missed the first penalty, everyone was calm saying we could do it and in the end our group helped us in the moment."
Italy defender Leonardo Bonucci said Spain gave him the toughest challenge of his career.
"It was the toughest game ever. I congratulate Spain for what they showed, but once again this Italy showed heart, determination and the ability to push through difficult moments," Bonucci said.
"There's a centimeter more to go now. It's unbelievable what we're doing. We'll be back here in five days and we have to have the same attitude that we've lacked for 50 years to bring home this trophy."
An emotional chiasa later applauded the result of the hard work.
"I can't put my feelings into words, it was a tough match, Spain was great tonight but we're back here on July 11 for the final," he said.
"Spain were great, they have star players but we fought till the end and we did it. When [Manuel] Locatelli missed the first penalty, everyone was calm that we could do it and in the end our group did it in the moment. helped us."