Substitute Joselu's last-gasp strike secured Spain a 2-1 victory to set up a Nations League final against Croatia on Sunday (kick-off 7.45pm). Italy will face Netherlands in a third-place play-off, also on Sunday (kick-off 2pm).
Joselu was the hero for Spain with a late goal that booked his side's place in the Nations League final against Croatia.
Spain looked to have got off to the perfect start when Yeremy Pino capitalised on some loose play in the Italy defence, firing his side ahead within the opening minutes.
But it did not take long for Italy to response and Roberto Mancini's team won a penalty after just ten minutes. Ciro Immobile converted coolly from the spot.
Despite dominating possession Spain failed to create many clear-cut chances and Unai Simon was called upon to make the biggest save of the game midway through the second half.
Both sides made five changes but it was Spain who looked the fresher in the final stages, and it was one of Luis de la Fuente's substitutes who won the game.
Espanyol's 33 years old striker Joselu found space in the box to score the crucial goal in the final minutes of normal time, continuing his incredible record in international football.
REAL MADRID
Who is Joselu? Espanyol’s journeyman striker linked with a move to Real Madrid
With his team in need of a goal, Spain head coach Luis de la Fuente turned to a 33-year-old target man who became one of his nation's oldest-ever debutants when he featured against Norway earlier this year.
Incredibly, Joselu struck twice on his debut against Norway and he scored the crucial goal again against Italy.
Real Madrid are reportedly interesting in bringing him to the club the strengthen their attacking options this summer. But who is Joselu?
Spain to play Croatia in the Nations League final
After two dramatic semi-finals, we know the identity of the two teams who will battle it out in the Nations League final.
On Wednesday Croatia secured passage with an extra time win against the Netherlands. Today it is Spain who triumph over the Italians to set up a fascinating final this Sunday.
What do both games have in common? Real Madrid!
Croatia booked their place in the final thanks to Luka Modric's late goal. For Spain it was Real Madrid target Joselu who got the goal. They meet this weekend in the final, will they be meeting in Madrid later this summer?
THE DEFINING MOMENTS
Substitute Joselu's last-gasp strike secured Spain a 2-1 victory as they set up a Nations League final against Croatia.
Yeremy Pino's early strike (3) gave Luis de la Fuente's side the advantage but Italy responded through Ciro Immobile's penalty (11) after Nicolo Zaniolo's volley struck the arm of Robin Le Normand.
In what was an end-to-end game, Davide Frattesi's goal was ruled out by VAR for offside midway through the first-half as the two sides went into the break level.
The quality dipped after the break as both sets of players fatigued. Alvaro Morata sent a low shot wide from the edge of the six-yard box before Man City midfielder Rodri's acrobatic effort flew just over the crossbar as Spain looked the most likely to snatch a victory.
However, Unai Simon produced a brilliant reaction stop to deny Frattesi as extra-time loomed before Joselu popped up two minutes from time to steer Rodri's deflected effort into the back of the net to send Spain into the final.
They will now face Croatia, who beat Netherlands 4-2 after extra-time on Wednesday evening, in the final in Rotterdam on Sunday (kick-off 7.45pm, while Italy will face the Dutch in the third-place play-off, also on Sunday (kick-off 2pm).
Player ratings
Spain: Simon (7), Navas (6), Le Normand (5), Laporte (6), Alba (6), Merino (7), Rodri (8), Gavi (7), Moreno (6), Pino (7), Morata (6).
Subs: Asensio (6), Canales (6), Fati (6), Ruiz (7), Joselu (8).
Italy: Donnarumma (6), Di Lorenzo (7), Bonucci (5), Acerbi (6), Toloi (6), Spinazzola (6), Frattesi (7), Barella (7), Jorginho (7), Immobile (7), Zaniolo (6).
Subs: Dimarco (6), Chiesa (6), Christante (6), Verratti (6).
Player of the match: Rodri.
How Spain edged Italy:
In a frantic start Italy were punished for some sloppy passing out from the back as Pino nicked possession from Leonardo Bonucci before firing past Gianluigi Donnarumma into the far corner to give Spain an early lead.
However, it didn't last long as Italy struck back immediately. Jorginho's inch-perfect pass picked out Zaniolo in the penalty area, and the Galatasaray winger's volley struck the hand of Le Normand.
Team news
Both Rodrigo and Jesus Navas started for Spain for the first time in three years. Meanwhile, Rodri, fresh from winning the Champions League with Man City, started in the middle of the park.
Ciro Immobile got the nod for Italy ahead of Mateo Retegui Newcastle target Nicolo Barella started in midfield and his Inter team-mate Francesco Acerbi also took his place in Italy’s defence after featuring in his side’s Champions league final defeat to City last Saturday.
Referee Slavko Vincic took his time before correctly pointing to the spot before Immobile tucked away the penalty to bring Italy level.
The frantic nature of the game continued as both sides struggled to get control, but it was Italy who thought they had taken the advantage when Frattesi latched onto another superb through ball from Jorginho before finishing past goalkeeper Simon. However, VAR intervened with the Sassuolo midfielder just failing to time his run.
Both sides continued to create chances right up until the half-time whistle as Donnarumma twice denied Alvaro Morata, while Rafael Toloi's strike from 30 yards whistled inches over the crossbar.
After the break, Spain were the side who came out on the front foot as Donnarumma denied substitute Marco Asensio from close range before Morata sent the rebound wide.
Rodri's hooked effort was inches away as Spain pressed to regain the lead, while Simon has to be at his best to deny Frattesi from eight yards in what was Italy's best chance of the second-half.
Extra-time looked inevitable as both teams started to run out of ideas and energy as they looked for a a winner, but Rodri's shot bounced off two defenders and fell kindly for Joselu, who poked home from four yards to spark the Spanish celebrations.
What's next?
Spain will play Croatia in Sunday's Nations League final at Stadion Feijenoord, Rotterdam. Kick-off 7.45pm.
Italy face Netherlands in a third-place play-off on Sunday at the FC Twente Stadion, Enschede. Kick-off 2pm.
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