England opened the scoring after four minutes, but were sent crashing out of Euro 2016 by fairy-tale minnows Iceland.
Now the Scandinavians will go on to face hosts France in the quarter-final of their first ever major tournament.
Raheem Sterling was brought back into the side, as England tried to recover from two draws and a last-gasp win over Wales in the group phase. Iceland got through ahead of Portugal by beating Austria, so both teams were still unbeaten. The underdogs fielded the same XI for the fourth time running.
It was a nightmare start for Iceland, as Sterling was clumsily brought down by Hannes Halldorsson and Wayne Rooney converted the resulting penalty after just four minutes.
However, it was England’s turn to be caught napping when a huge Aron Gunnarsson throw was nodded on by Kari Arnason for Ragnar Sigurdsson at full stretch just 34 seconds later.
Dele Alli blasted over from distance, but Iceland turned the game around completely when Joe Hart’s howler allowed a simple Kolbeinn Sigthorsson shot to squirm under his arm.
Halldorsson made up for his earlier error by punching a fierce Harry Kane volley over the bar, Skulason drilled just wide and Rooney shinned a volley.
After the restart Sigurdsson was about to complete his brace with a spectacular overhead kick, but this time Hart’s reflexes were sharp.
Sigurdsson needed a marvellous last-ditch tackle to stop substitute Jamie Vardy shooting when clear on goal and Kane’s header was comfortable for Halldorsson.
England seemed to be entirely without ideas and ran risks at the back, as Aron Gunnarsson forced a save on the counter after shrugging past Jack Wilshere.
Deep into stoppages even Hart came up for a corner, but Iceland secured the victory and barely suffered that much.
England 1-2 Iceland
Rooney pen 4 (E), Sigurdsson 6 (I), Sigthorsson 18 (I)
England: Hart; Walker, Smalling, Cahill, Rose; Alli, Dier (Wilshere 46), Rooney (Rashford 86); Sturridge, Kane, Sterling (Vardy 60)
Iceland: Halldorsson; B Saevarsson, Arnason, R Sigurdsson, A Skulason; Gudmundsson, G Sigurdsson, A Gunnarsson, B Bjarnason; Sigthorsson (E Bjarnason 76), Bodvarsson (Traustason 88)
Ref: Skomina (SVN)
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