The result was overshadowed by two controversial second-half decisions made by VAR review.
Trailing 2-1 in the 67th minute, England were denied a leveller when Ellen White, equal top scorer for the tournament, had her second goal disallowed.
After agonising minutes waiting for the VAR decision, the play was ruled offside –correctly, but the tightest of margins.
The second controversial VAR call came in the 80th minute when USA’s Becky Sauerbrunn made contact with White in the six-yard box.
VAR ruled the incident a penalty, but it was more heartbreak for England as USA keeper Alyssa Naeher saved Step Houghton’s spot kick.
England then lost their composure, with defender Millie Bright sent off in the 86th minute for a second bookable offence.
The Lionesses opened well against USA, FIFA's top-ranked team. Despite going 1-0 down early, thanks to a Christen Press header, England fought back to open up the USA defence multiple times.
The equaliser came nine minutes later when White latched onto a brilliant Beth Mead cross.
But USA's Alex Morgan, stepping up for Megan Rapinoe, headed in in the 31st minute, with the goal that would ultimately prove the winner.
With that Morgan also drew level with White to lead the Golden Boot race, with 6 goals each for the tournament.
England manager, Phil Neville said: “I’ve told them no tears tonight, I’m proud and they’ve touched the hearts of the nation.
“I couldn’t ask for more, we had the time of our lives.”
USA will face the winner of Netherlands vs Sweden in Sunday's final.