Hosts Portugal became the first team into the semi-finals of Euro 2004 after they beat England 6-5 on penalties at the end of a pulsating game which ended 2-2 after extra-time.
Captain David Beckham sliced England's first penalty over the bar on Thursday before Rui Costa missed for Portugal.
Portugal keeper Ricardo saved Darius Vassell's kick, England's seventh, and Ricardo himself stepped up to put his team into the semi-finals to spark mass celebrations across the nation.
Rui Costa, on as a 79th-minute substitute, thought he had clinched victory for Portugal when he put his team 2-1 up in the 110th minute, cutting in to arrow a right-foot shot past England goalkeeper David James from 25 metres.
But England found the energy to drag themselves back when Frank Lampard slotted in from close range five minutes later.
Portugal, semi-finalists at Euro 2000, had trailed for 80 minutes to Michael Owen's third-minute opener for England.
But they were handed a lifeline after 83 minutes when Helder Postiga, on for Luis Figo, headed in Simao's cross to take the game into extra-time.
England, wearing black armbands in memory of a fan who was killed chasing a pickpocket in Lisbon on Tuesday, could not have hoped for a better start as Owen scored his first goal of the tournament.
James hit a long upfield clearance and the ball flicked off midfielder Costinha's head straight into the path of Owen, who spun round to hook it past a helpless Ricardo.
England did not have to wait long for Portugal's response as the intricate passing of Deco, Figo and Manchester United winger Cristiano Ronaldo forced them into a series of last-ditch clearances.
England's attacking aspirations took a knock after 27 minutes when Wayne Rooney, the tournaments joint top scorer with four goals, appeared to twist his ankle under pressure from defender Jorge Andrade.
The 18-year-old received lenghty treatment on the touchline before hobbling away to be replaced by Darius Vassell.
Portugal continued to set the rhythm with Luis Figo pulling the strings in midfield, but he was often guilty of wayward shooting as England weathered the storm.
It was not all one-way traffic, however, and a resurgent Owen drew a superb one-handed save from Ricardo as England threatened on the break.
Owen, who had been disappointing so far in the tournament, also lobbed another effort narrowly over the bar.
Portugal kept up the pressure after the re-start as England's labouring midfield struggled to cover the green spaces inside the Luz stadium.
Ronaldo was gradually running out of tricks in his battle with Ashley Cole and the hosts were looking increasingly desperate when Postiga struck.
The striker had only been on the pitch for eight minutes when he powered home his header.
There was still time for more drama in the dying seconds of normal time when England defender Sol Campbell's headed goal was ruled out by referee Urs Meier to rule it our for pushing.
Teams:
Portugal (4-3-3): 1-Ricardo; 13-Miguel (10-Rui Costa 79), 16-Ricardo Carvalho, 4-Jorge Andrade, 14-Nuno Valente; 6-Costinha (11-Simao Sabrosa 63), 18-Maniche, 20-Deco; 7-Luis Figo (23-Helder Postiga 75), 17-Cristiano Ronaldo, 21-Nuno Gomes.
England (4-4-2): 1-David James; 2-Gary Neville, 5-John Terry, 6-Sol Campbell, 3-Ashley Cole; 7-David Beckham, 11-Frank Lampard, 4-Steven Gerrard (18-Owen Hargeaves 81), 8-Paul Scholes (14-Phil Neville 57); 9-Wayne Rooney (23-Darius Vassell 27), 10-Michael Owen.
Referee: Urs Meier (Switzerland)
Linesmen: Francesco Buragina (Switzerland), Rudolf Kappeli (Switzerland)