The Three Lions’ hopes of setting up a quarter-final with host nation France looked set to be fulfilled when skipper Wayne Rooney fired home an early penalty in Nice.
But Iceland hit straight back through Ragnar Sigurdsson before Kolbeinn Sigthorsson put them in front – and England never recovered.
Harry Kane, Dele Alli, Kyle Walker and Danny Rose played the whole match while Eric Dier was substituted at half-time.
The result means we’ve five players left in the tournament – Hugo Lloris with France, Ben Davies with Wales and Toby Alderweireld, Mousa Dembele and Jan Vertonghen with Belgium.
The latter two sides face each other on Friday night while France meet Iceland at the Stade de France next Sunday.
Above: Harry Kane under pressure against Iceland.