Australia ran in six tries to spoil England's long-awaited return to Wembley Stadium in the Four Nations.
Ryan Hall's brilliant finish gave England an early lead but Australia hit back with converted tries from Luke Lewis and Tony Williams.
Hall struck again just before the break, cutting the deficit to 12-8.
Greg Inglis and Paul Gallen scored for the Kangaroos and despite Jack Reed and Chris Heighington's tries, Darius Boyd and Chris Lawrence sealed an away win.
Australia's victory secures their place in the final, where they will meet England or New Zealand - who face each other in their final group game on Saturday and are currently only separated by points scored.
The game was the national side's first at Wembley since 1997 and England put on an admirable show, despite the unflattering score, in front of the 42,344 crowd.
The Kangaroos triumphed after losing Billy Slater, named international player of the year earlier in the week, when he suffered a fractured collarbone after 10 minutes.
Referee Henry Perenara was in the spotlight, controversially ruling out a claim for a try by Tom Briscoe for double movement early in the second half with Australia leading 18-8. It came just after he spared Williams a card following a high shot on Ben Westwood.
Early on Australia were saved by some high-quality defence as England made a positive start to the clash.
Steve McNamara's men deservedly broke through with an outstanding 12th-minute try as Kevin Sinfield's long pass out to the right wing was finished brilliantly by Hall, the Leeds winger swerving well at speed to stay in touch and ground the ball.
The tourists suffered a further blow when Slater, who was evaded for the try, was forced off with his shoulder injury.
Australia quickly recovered when Boyd spun out a pass that sparked a slick move, ending with makeshift winger Lewis touching down and Johnathan Thurston then kicked the conversion.
England kept dominating but a dangerous kick from Rangi Chase backfired as he gifted Australia possession - and the Kangaroos took advantage as Darren Lockyer's inside pass allowed Williams to push aside Heighington and stride over, and Thurston added the extras to make it 12-4.
The impressive Sam Tomkins then carved through and produced a classy offload to Reed to create the chance that hauled England back into contention, Hall finishing excellently again by collecting Reed's pass and holding off Boyd.
But Australia made a perfect start to the second half as Thurston dummied then threw out a clever pass for Inglis to jog over in the left corner for a try that was confirmed after the video referee decided there was no obstruction in the build-up - and Thurston kept up his perfect kicking record, making it three successful conversions in a row.
A frustrating spell for the home side followed as a number of close calls went against them, including the decisions on Williams and Briscoe.
England's woes were compounded as Cooper Cronk's magnificently disguised soft pass supplied Gallen who scored, and Thurston again converted. It gave the Australians a comfortable 24-8 lead in the 53rd minute.
Reed revived England's hopes again on the hour after he beat Boyd to Sinfield's high kick before going over for a try, this time converted by the Leeds captain.
But the game looked over for England when Boyd burrowed his way over in the 73rd minute, and although a neat passing move ended in a Heighington try, converted by Sinfield, Australia completed the scoring with Lawrence spinning and crashing over before Thurston kept up his 100% kicking ratio.