Balotelli curled an unstoppable shot past Julio Cesar as Italy recovered from 2-0 down at half-time to deny Brazil coach Luiz Felipe Scolari his first win since being reappointed for a second stint in November.
Neymar, 21, billed as Brazil's great hope for the future, cleverly set up their second goal for Oscar but was not in the same class as the mercurial Balotelli.
Brazil, showing signs of a more physical approach under their 2002 World Cup-winning coach Scolari, produced flashes of flair and lots of bruising tackles as they improved on their display in last month's 2-1 defeat by England at Wembley.
"I think we have definitely progressed. I liked the way the team performed. We didn't get desperate when they equalised and I thought they [Brazil's players] did very well."
Brazil are languishing in 18th place in the FIFA rankings but Scolari's opposite number, Italy coach Cesare Prandelli, also saw the possibilities in Brazil's developing side.
"I'm convinced they are a strong team with great potential," he said. "We don't really know how we ended up 2-0 behind but we didn't lose our balance and we kept our heads. Our young players showed great calm."
Andrea Pirlo, Italy's deep-lying playmaker, was as elegant as ever, floating one ball over the Brazil defence for Christian Maggio whose effort was blocked by Julio Cesar.
Fred opening the scoring in the 33rd minute when Filipe Luis's cross found him at the far post and he side-footed first time past Italy goalkeeper Gianluigi Buffon.
