Kieran Trippier put the Three Lions ahead but goals from Ivan Perisic and Mario Mandzukic sealed Croatias place in Sundays final against France.
Englands World Cup campaign summed up in one word: Pride
Devastated. Absolutely gutted. Thanks to the fans for your incredible support. /8fiWVdXrAY
Pickford, outstanding throughout the tournament, produced another sensational save at close range from Mandzukic.
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They will face Belgium on Saturday, aiming for third place, after losing 2-1 to Croatia in extra-time in the semi-final.
The biggest thing is when you see the reaction of the supporters at the end. That tells you what the players have given not just tonight but throughout the tournament.threelions pic.twitter.com/C3OLyM6NHm
There were a few waves of attack we didnt quite defend in the composed manner we have, but great credit to the players because they recovered that in extra-time and I felt took control of the game again.
Lovren got in a tangle with Harry Maguire in Englands box following a free-kick but the referee refused to give a spot-kick after consulting with VAR.
As the game entered extra-time, England came agonisingly close to taking the lead when John Stoness header from a corner was cleared off the line.
England will now have to pick themselves up to face Belgium in the third place playoff on Saturday in Saint Petersburg.
Croatia edged back into the game near the end of the first half and defender Dejan Lovren felt he should have had a penalty on the stroke of half time.
The goal was followed by a series of chances for England as Croatia struggled with the pace of the Three Lions attack.
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Harry Maguire said he was devastated but thanked fans for their incredible support.
It was a dream start, as England took the lead in the 5th minute with a stunning free kick from Kieran Trippier after Dele Alli was brought down just outside the box.
To everyone who knows this is only the beginning.
Raheem Sterling, who was a constant threat throughout the game, had a decent shout for a penalty after he appeared to be tripped by Domagoj Vida.
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England continued to look strong at the start of the second half and Kane nearly got on the end of a terrific cross on the volley by Trippier.
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Some of the squad posted on social media shortly after the final whistle.
Croatia drew level in the 68th minute after Perisic fired in a shot after a cross from defender Sime Vrsaljko – setting up a nervous final 20 minutes for supporters as they saw Englands slender lead disappear.
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Minutes earlier Kane had been left one-on-one with Subasic but put his strike wide, although he had been flagged offside.
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Southgate said that despite the massive disappointment the tournament would serve as a learning experience for his young team.
The Tottenham defenders curling shot – reminiscent of a David Beckham strike – flew into the top corner and sparked jubilant scenes among England fans who had packed pubs and fan-zones across the country.
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Was an honour to represent my country at the world cup. The squad we have is a great bunch of lads who are willing to learn and give everything and we can hold our heads high. Thank you to everyone who supported our journey 👏🏾 we dont stop here! m/QuZ6XOmgOj
Soon after Kyle Walker bravely blocked a shot by Ivan Perisic that looked to be flying into the net.
Right now, however, that prospect will be sickening for the England players.
Marcus Rashford posted: Really tough right now but this teams special.. well be back. Hopefully this is the start of the future.
It hurts a lot. It will hurt for a while. We can be proud and well be back. Thanks for all your support.
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The 52-year wait for another major trophy goes on for the Three Lions and it will be Croatia who play France in Sundays final.
Jesse Lingard also went close after finding space at the edge of the box but his shot crept narrowly wide.
We lost a little bit of control with the ball and started to go a bit longer… youre ahead in a huge game and nobody knows how youre going to react, he told ITV.
Englands official Twitter said Russia 2018 was only the beginning, adding: We hope we made your proud.
The dejected England team knocked out of the World Cup were up early this morning and on the team bus headed for the play-off.
His Manchester United teammate, Jesse Lingard, added: The squad we have is a great bunch of lads who are willing to learn and give everything and we can hold our heads high.
Manager Gareth Southgate, who has had praised heaped on him for his calm leadership, admitted the team struggled in the second half after such a positive and dominant first 45 minutes.
Croatia nearly took the lead four minutes later after sloppy defending allowed Perisic to nip in before his shot hit the post.
We know the team we brought was the most inexperienced in the competition but we gain that experience from matches in this tournament and performing under pressure.
Thank you. We hope we made you proud.
To everyone who wasnt afraid to dream.
Harry Kane tweeted: It hurts a lot. It will hurt for a while. We can be proud and well be back. Thanks for all your support.
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After a period of pressure from Croatia, Lingard nearly put England back in the lead with a strike across the face of goal.
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Then came the moment that England fans were dreading: Juventus striker Mandzukic made no mistake in the second-half of extra time, striking a low left-footed shot past Pickford.
On good chances weve probably had as many as Croatia have. Its a blow to concede as late as we did.
Harry Kane hit the post with a rebounded shot at a tight angle after his first effort was saved by Croatias goalkeeper Danijel Subasic.
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To everyone who believed this time was different.
But Croatia continued to pose a threat and a half-volley from striker Mario Mandzukic forced a great save from England goalkeeper Jordan Pickford.