The semi-final victory thanks to Balotelli's first-half double extended Italy's unbeaten run against Germany in major tournaments to eight games and Mesut Ozil's late consolation penalty only disguised what was a comprehensive success.
There was real desperation about three-time champion Germany's attempts to get back into the game from early in the second half and, before Italy defender Federico Balzaretti's late handball in the area, all they could muster was a series of hopeful crosses despite forcing 14 corners.
Italy missed a host of chances to make it 3-0 and put the game beyond any doubt after Balotelli had left the field complaining of cramp just after the hour.
The game's highlight was the 21-year-old striker's stunning second goal late in the first half, created when he peeled away from his marker to latch onto a Riccardo Montolivo through ball and drive it high into the net.
"The career of Mario Balotelli has only just begun. He's brilliant, but this was a team effort," said Italy coach Cesare Prandelli.
"We have played an extraordinary game. We have given an example of how to show grace and an attachment to the shirt."
Italy midfielders Andre Pirlo and Daniele De Rossi, with more than 160 caps between them, orchestrated a recovery from a whirlwind start by Germany that saw Pirlo clear off the line and a ball deflected off Andrea Barzagli slide past his own post.
Gianluigi Buffon, in his 119th appearance for the Italians, also made a string of fine saves in the first half and touched Marco Reus's rasping second-half free-kick onto the bar.
"At the start we had things well under control without getting a lot of clear chances," said Germany coach Joachim Low. "After falling behind we weren't so clear and organised any more."
"If we had got the goal sooner it would have been a different match. It's very difficult against a team like Italy to fall behind 2-0. They defend with everything they have."
A pulsating first half was a welcome breath of fresh air after a knockout stage that had been lacking in goals and was a return to the open, attacking football which had marked most of the group games staged by co-hosts Poland and Ukraine.
For the fourth tournament running, Low's commitment to youth has seen the Germans play some of the most exciting football - taking maximum points from their group games and scoring nine goals in getting to the semi-finals.
The coach, who had overseen a perfect winning run of 15 competitive games since the 2010 World Cup, blamed loose defending for Thursday's surprise defeat.
Balotelli's opener came against the run of play after Antonio Cassano - a handful all night - had twisted past defenders Mats Hummels and Jerome Boateng to curl a perfect centre across the six-yard box after 20 minutes.
"Mats shouldn't have speculated like that," Low said. "If he had just stood there Cassano couldn't have turned on him like that. The cross shouldn't have been allowed either."
There was also nothing the wide open Germany defence could do to stop Balotelli's second goal which he struck perfectly on the run as the ball took a slight bounce in front of him.
Italy, seeking their second European title after their 1968 triumph on home soil, now face world champions Spain in the showpiece match on Sunday in Kiev, a rematch of a surprisingly open 1-1 draw in the teams' first game at the finals.
Balotelli, now joint top scorer at the tournament with three goals, has the chance to claim the golden boot against a Spanish side who have tended to play without a recognised striker.
"Can we just not enjoy this evening?" Prandelli told re
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