Marcello Lippi's team were dire, but that should not take any credit away from the All Whites, who were superb throughout the 90 minutes.
Indeed Italy needed a contentious penalty to salvage a point after former Halifax Town striker Shane Smeltz had put New Zealand ahead.
There is now a real danger that European quintet France, England, Germany, Spain and Italy could all fail to progress to the last 16 of the competition.
The Italians had to come from behind to grab a draw against Paraguay in their first group game while the All Whites snatched a goal at the death as they drew 1-1 with Slovakia, but there were few people who predicted New Zealand would share two goals with the 2006 world champions.
The All Whites were certainly not over-awed as they pushed forward in the early stages. Incredibly a seventh-minute free-kick was flicked on for Smeltz, who looked suspiciously offside, to poke the ball home.
Italy piled forward searching for an instant response and Giorgio Chiellini lofted the ball over the bar before Gianluca Zambrotta lifted a shot over Mark Paston but, unfortunately for the reigning world champions, also just wide of the target.
In the 27th minute Riccardo Montolivo let fly and, although the shot beat Paston, it came back into play after cannoning back off a post.
Two minutes later, Lippi's team were handed a lifeline when Tommy Smith was harshly adjudged to have tugged at Daniele de Rossi's shirt inside the area and Vincenzo Iaquinta sent Paston the wrong way from the penalty spot.
Domenico Criscito then fired a shot way over the bar as Italy looked for a second goal but, if anything, New Zealand improved defensively in the second half.
There was a half-chance for Iaquinta who was unable to turn his shot goalwards, while Chiellini flicked a header wide.
But the closest Italy came to grabbing a winner came with 18 minutes left when Paston was forced to make his best save of the game, diving full length to keep out Montolivo's goalbound effort.
Indeed New Zealand almost snatched a dramatic winner with seven minutes left, when teenage substitute Chris Wood lashed a shot past Federico Marchetti only to see the ball whistle just wide.
Italy looked devoid of ideas as they chased the game in the last few minutes and badly missed the likes of an Alessandro del Piero, Antonio Cassano, Francesco Totti or even Andrea Pirlo.