Gianluigi Buffon saved three Uruguay penalties to partially banish Italy's Fortaleza shootout nightmare and earn them third place.
An entertaining game had finished level after extra time, with two brilliant free-kicks the highlight of the 120 minutes. Edinson Cavani twice equalised for La Celeste in normal time after first Davide Astori and then Alessandro Diamanti had put Cesare Prandelli's men ahead.
The teams began fairly tentatively, with both registering only speculative efforts in the opening stages. Giorgio Chiellini flicked a header wide after a fine Alessandro Diamanti delivery and Diego Forlan drilled a low free-kick at Gianluigi Buffon.
The deadlock was broken before the half-hour mark with a slightly fortuitous goal for Italy. Diamanti whipped in a left-footed delivery and the ball hit the post before bouncing off the unsighted Muslera. It dropped perfectly for Astori to tap home on the line to score on his FIFA Confederations Cup debut.
Cavani then headed home after a whipped free-kick, but he was denied by the offside flag. Luis Suarez and Maximiliano Pereira saw efforts saved by Buffon, but Uruguay could not draw level before the interval.
The opening exchanges of the second half were as muted as the beginning of the match, but the second period sparked into life thanks to Uruguay’s No21. Cavani received a reverse pass in the Italian area, opened his body up on to his favoured right foot, and sidefooted past Buffon. It was Cavani’s first goal against the country in which he currently plays his club football.
Buffon then pulled off a magnificent double save to deny Forlan, before Italy regained the lead following another Diamanti set-piece. Italy’s No23 was felled by Walter Gargano and the winger curled a wonderful left-footed effort beyond Muslera.
Within five minutes, Cavani had an opportunity to match Diamanti’s strike, and he did so with aplomb. From around 30 yards out he curled a fantastic dead ball beyond Buffon, who got a touch to the free-kick but could not keep it out.
Neither side went close to regaining the advantage and the match headed into extra time, Italy's second 120-minute game in less than 72 hours.
The teams seemed tired after an energy-sapping and entertaining 90 minutes, and extra time offered little in the way of clear opportunities. The tournament had its second shootout in two games.
Forlan went first, and saw his effort saved by Buffon. Alberto Aquilani then successfully converted, as he did in Thursday's semi-final. Cavani added to his two goals during normal time to open Uruguay's account. Stephan El Shaarawy and Suarez scored before Mattia De Sciglio saw his effort saved by Muslera.
It was to be of no consequence, as Martin Caceres put a weak penalty low to Buffon's left and the Italy skipper saved with ease. Giaccherini converted before Walter Gargano stepped up and saw his effort saved by Buffon to spark Gli Azzurri celebrations.
Cesare Prandelli's men now leave Brazil with some comfort as the third-placed side, having partially banished their penalty nightmare in Fortaleza.