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England qualified for the final after defeating Germany 2-1 in the Euro 2022 final last year, while Brazil defeated Colombia 1-0 to earn their eighth Copa America Femenina championship.
Before kickoff, the crowd of over 83,000 people and the players joined in a minute of applause to honor Brazil great Pele, who died in December.
England got off to a fast start, playing with confidence and restricting the opponents, who were without injured record scorer Marta, to only a few breaks.
Lucy Bronze stung custodian Leticia's hands from long range, and Jess Carter produced a critical block to hold the lively Geyse at bay. In the 23rd minute, Manchester United striker Toone capped a beautiful play down the right, connecting nicely with a cross from Bronze.
Just before the half-hour mark, the home crowd thought England had increased their lead, but Lauren James' shot was ruled out for offside.
Brazil coach Pia Sundhage replaced Lauren and Beatriz Zaneratto with Andressa and Adriana, and the adjustments had an immediate impact.
Kerolin came close with a long-range shot that sailed wide of Mary Earps' goal. Earps then made a superb save to deny Geyse, tipping the ball into the top of the crossbar soon before the hour mark.
England recovered some control but was stunned to concede a late equalize when Earps failed to hold on to a cross and Andressa shot home.
England, on the other hand, rebounded and remained calm to win the shootout, sending the crowd berserk.