Italy struck first when Marchisio drilled a low shot past Joe Hart after 35 minutes following a well-worked corner.
England's response was immediate with Daniel Sturridge firing home at the back post just two minutes later following a slick move involving Raheem Sterling and Wayne Rooney.
But the Azzurri restored their lead on 50 minutes when former Manchester City striker Balotelli headed home at the back post. The goal came after the left side of England's defence - which often saw Leighton Baines left unprotected -was exposed once too often.
Roy Hodgson's side had several efforts on goal as they tried to get back into the game, but in Salvatore Sirigu - only drafted into the Azzurri side following an injury to first-choice Gianluigi Buffon - they found a keeper in excellent form, as Cesare Prandelli's men held on to join Costa Rica on three points at the top of Group D.
It had all started so promisingly for an attack-minded England line-up, with Sterling and Jordan Henderson trying their luck from distance amidst the stifling heat of the Amazonia.
Antonio Candreva forced Hart into a fumbled save following a shot from distance, while Balotelli's effort from a similar distance sailed over.
Danny Welbeck's low ball into the box almost forced Italy into an own goal with Andrea Barzagli deflecting the ball just wide of Sirigu's goal.
But after a spell of concerted pressure, Italy took the lead when a well-worked corner saw the ever-impressive Andrea Pirlo step over the ball and leave his Juventus team-mate Marchisio to drill in a low shot from 25 yards that gave Hart no chance.
But England were back on level terms on 37 minutes when Sterling's fine ball picked out Rooney on the left and his cross was fired in first time by Sturridge at the back post. In the aftermath of the goal - and in one of the most bizarre incidents of the tournament so far - England physio Gary Lewin suffered a suspected dislocated ankle and had to be stretchered away from the technical area.
England then had two scares on the field as half-time approached, first when Balotelli's goal-bound chip evaded the stranded Hart, but was brilliantly headed off the line by Phil Jagielka, before Candreva's low shot from a tight angle struck the base of Hart's post.
The Three Lions made a lively start as the second half got underway, with Sturridge skipping inside a Daniele De Rossi challenge before seeing his 25-yard shot beaten away by Sirigu.
But it was Italy who made the telling breakthrough five minutes after the restart when they again exposed the huge spaces on the left side of England's defence, with Candreva's cross picking out Balotelli, who found space at the back post to head past Hart.
England had a great chance to draw level for a second time when Rooney drilled a low just shot wide of goal with Sirigu beaten, while the PSG stopper had to be alert to push out a low shot from substitute Ross Barkley.
Baines' free-kick then forced Sirigu into another save, while Gerrard's effort from a similar distance flew comfortably over the Azzurri crossbar.
Pirlo then saw a dipping free-kick strike the crossbar in injury-time as the veteran midfield maestro looked to have the final word on proceedings. But it mattered little as Italy held on to claim a vital victory, to ensure they'll go into Thursday's clash with Costa Rica level on points at the top of Group D.