Manchester City's enigmatic striker provided Italy with the cutting edge and two first-half goals as Joachim Loew's Germany failed to produce the impressive form that had seen them touted as potential tournament winners.
Balotelli put Italy on the way when he directed Antonio Cassano's cross past Germany keeper Manuel Neuer then added a thunderous second from Riccardo Montolivo's pass.
Mesut Ozil's injury-time penalty provided the briefest anxiety for Italy, whose victory was confirmed moments later, and Balotelli fell into the warm embrace of his mother as he made his way down the tunnel.
The 21-year-old limped off with cramp late on - but his work was done and Italy can now look forward to a meeting with world and European champions Spain in Kiev on Sunday.
Italy's victory maintained their stranglehold on Germany - they are undefeated in eight competitive encounters that take in five matches at the World Cup and three in the European Championship.
And the scale of Italy's achievement is the greater for the fact that Germany had an additional 48 hours to prepare while Cesare Prandelli's side were going through after extra-time and penalties against England.
Balotelli, along with the pass master Andrea Pirlo, was the inspiration but Italy's defenders and goalkeeper Gianluigi Buffon provided defiance and quality as Germany threatened in the first half then attempted to mount a recovery after the break.
Germany coach Loew responded to Pirlo's master class against England by detailing the recalled Toni Kroos to monitor the veteran. The ploy was not a success.
Buffon and his German counterpart Neuer had greeted each other warmly in the tunnel before kick-off in a prelude to a busy first 45 minutes for the pair.
Buffon was grateful Pirlo was well placed to clear Mats Hummels' effort off the line and also needed to be alert to deal with Jerome Boateng's dangerous cross, which almost deflected in off Andrea Barzagli, as well as a shot from Kroos.
Italy edged their way into the game as Neuer saved from Montolivo and they capitalised on the spell of pressure when Balotelli headed them in front after 20 minutes. Cassano was the creator as he escaped Hummels and crossed perfectly for Balotelli, who lost Holger Badstuber to head past Neuer.