Stuart Broad's team spluttered to 18 for three, against Lasith Malinga - and despite a maiden Twenty20 international half-century from Samit Patel, could not sustain a telling recovery in pursuit of 169 for six at Pallekele.
Sri Lanka hit seven sixes in all, and it was clear England faced no easy task to win their last Super Eight match - as they had to if they were to qualify on net run rate ahead of West Indies.
Game over: Sri Lanka celebrate their comprehensive victory over T20 holders England
Sri Lanka v England
That was not quite the knockout blow, England twice briefly threatening to put themselves back in contention. But in the end - even with a late hand from Graeme Swann to help narrow the margin - Patel (67) was left with too much to do on his own.
No Sri Lanka batsman had been able to single-handedly dominate, after being put in under lights, Broad (three for 32) faring best of the England bowlers.
But each kept hitting big shots - and once Malinga got to work, it all proved far too much for the 2010 champions who had rarely convinced in a stuttering group campaign.
Steven Finn and Jade Dernbach used the new ball well for them, until the latter dropped short in his second over - and was hooked, by Mahela Jayawardene, and upper-cut, by Tillekeratne Dilshan, for sixes.
Dernbach had already had Dilshan dropped head-high at slip by Swann. But it was not a costly miss, because Finn soon had the opener lbw bang in front.
Flummoxed: England were once again undone by spin as they surrendered their crown in Pallekele
Jayawardene played and missed at some early drives but then batted serenely, as he almost always does, to help his team to 74 for one at the halfway mark.
The 11th over, however, brought an advantageous trade-off for England - eight runs off Swann, and two wickets.
Swann had Jayawardene well-held by Eoin Morgan, diving in at deep midwicket, and then Kumar Sangakkara controversially caught-behind next ball.
Sangakkara appeared perplexed to be given out by Steve Davis, and replays did not obviously demonstrate any contact with the bat - but Jonny Bairstow, keeping wicket in place of the dropped Craig Kieswetter, did not mind about that.
Sri Lanka had to start again, with two men in on nought.
But Jeevan Mendis immediately swept and then slog-swept Swann for boundaries, and at the other end Angelo Mathews climbed into two off-drives for boundaries off Broad.
After the fourth-wicket pair shared a half-century stand in five overs, Broad returned to become the second England bowler to put himself on a hat-trick.
Broad appeal: The England captain took three wickets as Sri Lanka posted a total of 169
He had Mendis mis-pulling to midwicket, and then Mathews edging on to his stumps as he tried the same shot.
Once more, two new batsmen were in on nought. But again, they flourished - Thisara Perera especially with some muscular hitting to give the hosts the edge at the interval.
That narrow advantage was soon much broader when Malinga, held back until the third over, made an instant and terminal impact.
Luke Wright cut him hard but straight to point, where Dilshan took the catch; Bairstow, promoted to number three, lasted only two balls before falling for a change of pace and getting underneath one to mid-off, and Alex Hales was perhaps a little unfortunate to be given out lbw.
Patel breathed some life into England's reply nonetheless, energising a 55-run stand with Morgan as he took particular toll of Ajantha Mendis with a string of off-side boundaries.
Man of the moment: Malinga was the star with the ball as England came up well short of the hosts' total
Patel carried on regardless to and beyond an impressive 37-ball 50, containing seven fours and a six.
But no significant support was forthcoming until Swann helped him plunder 51 from just 28 balls to keep England in with the slimmest of chances until almost the end.
Malinga returned, however, to bowl Patel off-stump as he made room in the penultimate over.
An inexperienced England line-up therefore exited, with hints of their potential if nothing more tangible, from a tournament which perhaps came too soon for several talented but still developing cricketers.