England's unbeaten run was brought to a controversial end in stoppage time by bogey side Germany.
Felix Uduokhai's 91st minute strike was allowed to stand despite Kyle Walker-Peters appearing to be down in the box with a head injury.
That goal halted England's unbeaten sequence at 19 games and sends them into this summers Euros on the back of a first defeat in almost two years.
The Young Lions have now lost the last three matches they have played at this level against old foes Germany, including a semi-final loss in the last Euros in Poland.
Uduokhai's late finish took the gloss off £19m Bournemouth striker Dominic Solanke scoring his first goal at the Vitality Stadium – albeit for the under-21s – which brought England level after Mahmoud Dahoud's opener.
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And it meant a winning first return to England for Germany's under-21 head coach Stefan Kuntz, who was part of the side that won Euro 96 at Wembley.
Kuntz's name might have brought back bad memories of his Euro 96 semi-final penalty shootout miss against Germany for England boss Gareth Southgate.
But Southgate was in the stands alongside his assistant Steve Holland to watch England's future 24 hours after guiding the present to another impressive win in Montenegro.
England found out pretty quickly that this was to be a very different test to the Poland draw which they dominated.
Germany looked every inch European champions at this level, composed in possession and stroking the ball around with ease.
And when they took a 27th minute lead it had been coming. Five minutes after a close-range miss from Florian Neuhaus Mahmoud Dahoud fired Arne Maier's chipped pass into Dean Henderson.
There were shrieks of excitement whenever England entered Germany's final third but it was the impressive visitors who came closest to scoring again through Dahoud and then Luca Waldschmidt when Henderson tipped his shot onto the post.
But England finally got it just before half-time when the ball bounced kindly for Solanke after a double ricochet leaving him with a simple tap in.
Boosted by the leveller, England looked a different side after the break.
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Kieran Dowell bent a free-kick over, Harvey Barnes curled just wide and Foden's shot brushed the side netting.
Levin Oztunali and sub Lukas Nmecha – the Manchester City forward whose clearance to switch from England to Germany only came through just before kick-off – went close in response for Germany.
And the visitors had the final word in added on time when Maier's cross landed at the feet of Uduokhai, who ignored the appeals around him to slam in the winner.
ENGLAND: Henderson 7; Walker-Peters 5, Fry 6 (Konsa 67, 6), Clarke-Salter 6, Sessegnon 6 (Dasilva 81, 5); Davies 6 (Calvert-Lewin 67, 6), Dowell 6 (Choudhury 67, 6); Barnes 6 (Lookman 81, 5), Foden 7, Gray 6; Solanke 7 (Maddison 81, 5). Unused subs: Gunn, Woodman, Kenny, Tomori, Kelly.
