New Zealand took the lead within seven minutes after Simon Elliott whipped over a curling free-kick from the left and with tall defender Winston Reid flicked the ball on, and Shane Smeltz prodded the ball past Federico Marchetti.
Italy, sorely lacking the creativity of injured AC Milan midfielder Andrea Pirlo, equalised from the penalty spot with Vincenzo Iaquinta scoring after Daniele De Rossi seemed to tumble easily.
The Azzurri pressed hard for three points in a pulsating second half, but the All Whites stood firm and could have snatched a remarkable victory had 18-year-old West Brom forward Chris Wood not guided a late left-foot shot just wide of the post.
It still represents the best result in the history of a nation which still does not have a professional football league and is far better known for its daunting rugby exploits.
New Zealand will probably need a victory over Paraguay in their final Group F match in order to qualify for the seciond round.
FIFA World Cup 2010 - Group F Standings
Group F W D L F A GD Pts Paraguay 1-1-0 3:1 +2 4 Italy 0-2-0 2:2 0 2 New Zealand 0-2-0 2:2 0 2 Slovakia 0-1-1 1:3 -2 1