Portugal reached the semi-finals with a 6-5 penalty shoot-out win over England.
David Beckham fired England's first one over, and though Rui Costa missed soon after, keeper Ricardo saved from Darius Vassell then scored the winner himself.
Michael Owen put England ahead after a Costinha error, but Helder Postiga made it 1-1 before Sol Campbell had a 90th- minute goal controversially ruled out.
Rui Costa's extra-time scorcher put the hosts ahead, but Frank Lampard turned sharply and scored to force penalties.
However, the shoot-out went the way of the hosts, leaving England to go out of a major tournament on penalties for the fourth time.
Yet the defeat came after England had made the dream start to their quarter-final in Lisbon.
Not only did England fans commendably respect the Portuguese national anthem, Owen responded to his critics in the most emphatic fashion.
David James launched a massive clearance upfield which Costinha attempted to cut out but contrived to head backwards into the path of Owen.
The England striker displayed all his predatory instincts, allowing the ball to drop before brilliantly flicking the ball past Ricardo with only three minutes gone.
The goal galvanised Owen, who became the first England player to score in four consecutive international tournaments - beating Geoff Hurst's record.
The swiftness of England's opener meant it was unlikely that the game would settle down and Portugal pressed for the equaliser.
Sven-Goran Eriksson's men made life difficult for themselves by giving away possession regularly, with Paul Scholes and Lampard guilty of failing to make the simple pass.
Luis Figo wriggled past Gary Neville in defence and his cross found Cristiano Ronaldo, who saw his shot blocked by a combination of the superb Ashley Cole and Sol Campbell.
Beckham then failed to cut out a pass to Figo, allowing Deco to feed the ball to Maniche who sent a rasping drive goalwards which James expertly tipped over for a corner.
Campbell almost doubled England's advantage on 20 minutes when he headed a Gary Neville cross just over the bar.
England needed to get a grip on proceedings, but they were dealt a blow when Wayne Rooney, their talisman, was forced off midway through the first half after being struck on the foot.
Rooney's mere presence had preoccupied the Portugal defence to such an extent that they were leaving Owen unmarked.
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England's goalscorer twice went close to adding to his tally, first lobbing just over Ricardo and then forcing the goalkeeper into a fine save with a snap shot on the edge of the area.
Vassell replaced Rooney, but it was not England's attack that was giving cause for concern it was their defence.
Time and again they failed to close down Portugal and England were lucky to go into the break with their lead in tact.
Shortly after the interval, Eriksson replaced the ineffective Scholes with Phil Neville to nullify playmaker Deco.
But Portugal continued to pose a threat and Luiz Felipe Scolari brought on the attack-minded Simao in the place of holding midfielder Costinha.
And Simao signalled his intent, whipping in a shot within minutes of entering the fray.
Figo forced an excellent save from James low to his right and won a corner only to be substituted with Postiga coming on in his place.
The Portugal captain sloped off down the tunnel, but Scolari's two substitutions proved inspired as they combined late on to grab the hosts an equaliser.
England's defence failed to clear Simao's initial cross and his second was met by Postiga's head, the ball flying past James.
It was no less than Portugal deserved for the constant second-half pressure.
But back came England and they thought they had won the match with a minute left when Campbell bundled home a Beckham free-kick after Owen had initially struck the crossbar.
However, referee Urs Meier deemed that John Terry had impeded Ricardo and awarded Portugal a free-kick.
Both teams looked tired going into extra time, and England's defence was called into some desperate last-ditch defending to keep Portugal at bay.
The exemplary Cole made a brilliant goalline clearance to deny Portugal, but there was nothing England's defence could do about Portugal's second.
Costa fired an inexorable strike that crashed in off the crossbar to leave James with no chance.
But England simply refused to yield to the hosts and Lampard equalised from close range after Terry had headed down Beckham's corner.
The game went to penalties, which once more proved England's downfall, with Beckham firing over the crossbar after he seemed to lose his footing on the sandy surface.
Goalkeeper Ricardo then stepped forward himself to score the winning spot-kick and send the Portuguese fans wild.
England, meanwhile, were left to reflect on another evening of hurt as their quest for international honours stays unfulfilled.
source: news.bbc.co.uk/sport2/hi/footb...