Match ends, England U21 1, Germany U21 2.
European champions Germany scored a stoppage-time winner to bring an end to England U21s' 18-game unbeaten run.
England looked to have done enough to earn a draw at Bournemouth's Vitality Stadium but the unmarked Felix Uduokhai popped up with a late scrappy goal.
Dominic Solanke had earlier equalised after an excellent turn by Phil Foden, cancelling out Mahmoud Dahoud's opener.
Germany were good value for the win after dominating the first half and pressing for a winner after the break.
Borussia Dortmund midfielder Dahoud fired Germany in front with a smart finish after 27 minutes, and they came close to doubling their lead when Luca Waldschmidt hit the outside of the right post.
But Bournemouth striker Solanke, handed the captain's armband for the match at his home ground, looked sharp throughout and took advantage of Foden's deflected pass before rounding the goalkeeper and slotting into an open net to make it 1-1.
Germany pressed for a winner after the break, stretching the play and getting in behind England's defence on numerous occasions.
Hertha Berlin midfielder Arne Maier was their biggest threat. After setting up Dahoud with a lovely through ball for the opening goal, he also provided the pass for Waldschmidt's shot off the post and made a number of darting runs through the centre.
But it was Uduokhai who dealt the late blow amid some controversy.
England defender Kyle Walker-Peters appeared to suffer a head injury as he attempted to clear a Germany corner, but play was allowed to continue and when the ball broke to Uduokhai he fired into the net from close range.
England boss Aidy Boothroyd said: "If it's a terrific goal then you hold your hands up but it was a scrappy goal, in a friendly and the referee should have stopped play and awarded us a free-kick."
Foden impresses as Southgate watches on
England boss Gareth Southgate was at the Vitality to keep a close watch on the national team's next crop of young players.
Senior debuts this week for Callum Hudson-Odoi, 18, and Declan Rice, 20, again showed the clear pathway laid out for any young players who catch the eye.
One of those who will be knocking on the door is Manchester City's Foden. He has already made 23 appearances for Pep Guardiola's side this season - including 10 in the Premier League and four in the Champions League.
And he showed his class with a brilliant turn in the build-up to the equaliser - deceiving two defenders and using his quick feet to gain a yard of space before threading a deflected pass through to Solanke.
Another sharp turn and a mazy run from Foden earned England a free-kick just outside the box within minutes of the restart and he ruffled the side-netting with a powerful effort later in the second half.
Even with Germany dominating the midfield, Foden still looked a class above the rest and Southgate will have been impressed by his technical ability.
Man of the match - Phil Foden
'The more he plays, the better he gets' - reaction
England U21s manager Aidy Boothroyd speaking to BT Sport: "We are disappointed because we want to win every game we play. It was a good test for us. It was two good teams having a go at each other.
"It's a horrible loss but we have to look at the positives. I thought Phil Foden was exceptional and it was nice to see Dominic Solanke get on the scoresheet again. Foden has a lovely weight of pass and he has so much talent. The more he plays with us, the better he will get. No doubt about it.
"I am really pleased for Solanke because his work off the ball was terrific. He made some good runs and got what he deserved."
- 15FrySubstituted forKonsaat 68'minutes
- 19R SessegnonSubstituted forDasilvaat 81'minutes
- 14DaviesSubstituted forCalvert-Lewinat 68'minutes
- 4DowellSubstituted forChoudhuryat 68'minutes
- 18BarnesSubstituted forLookmanat 81'minutes
- 20SolankeSubstituted forMaddisonat 81'minutes
- 4UduokhaiBooked at 50mins
- 14MittelstädtSubstituted forKlünterat 60'minutes
- 15MaierSubstituted forLöwenat 60'minutes
- 8DahoudSubstituted forStenzelat 80'minutes
- 7ÖztunaliSubstituted forEggesteinat 80'minutes
- 19NeuhausSubstituted forSabiriat 59'minutes
- 18AmiriBooked at 22minsSubstituted forIyohaat 59'minutes
- 10WaldschmidtSubstituted forNmechaat 60'minutes
- Marco Di Bello
- Shots on Target
Second Half ends, England U21 1, Germany U21 2.
Benjamin Henrichs (Germany U21) wins a free kick in the defensive half.
Foul by Dominic Calvert-Lewin (England U21).
Foul by Eduard Löwen (Germany U21).
Ademola Lookman (England U21) wins a free kick in the attacking half.
Delay over. They are ready to continue.
Delay in match Kyle Walker-Peters (England U21) because of an injury.
Goal! England U21 1, Germany U21 2. Felix Uduokhai (Germany U21) left footed shot from the centre of the box to the top right corner. Assisted by Benjamin Henrichs with a cross following a corner.
Corner, Germany U21. Conceded by Hamza Choudhury.
Corner, Germany U21. Conceded by Ademola Lookman.
Offside, Germany U21. Emmanuel Iyoha tries a through ball, but Johannes Eggestein is caught offside.
Timo Baumgartl (Germany U21) wins a free kick in the defensive half.
Foul by Ademola Lookman (England U21).
Attempt missed. Abdelhamid Sabiri (Germany U21) right footed shot from outside the box is too high from a direct free kick.
Lukas Nmecha (Germany U21) wins a free kick in the attacking half.
Foul by Jake Clarke-Salter (England U21).
Delay over. They are ready to continue.
Delay in match Abdelhamid Sabiri (Germany U21) because of an injury.
Abdelhamid Sabiri (Germany U21) wins a free kick on the right wing.