England made an electric start with Kieran Trippier's early goal and for a large period of the game looked good value to book their passage to the final for the first time since 1966, but Croatia somehow battled through their apparent jadedness to tame the Three Lions, Mandzukic landing the decisive blow.
Gareth Southgate consistently downplayed the euphoria in his team in the build-up, and for a while England gave every indication they were going to take charge of their own destiny, as Trippier found the net with a delightful free-kick in the fifth minute.
But Croatia rallied and gave England's back three more of an examination upon the start of the second period, eventually restoring parity – Ivan Perisic providing a clever finish in the 68th minute.
England managed to hang on to force an extra 30 minutes and initially looked the more threatening of the two teams once again in the first additional period.
But Croatia kept their focus and Mandzukic struck in the 109th minute, ending England's dreams for another four years and setting up a final with France, as Zlatko Dalic's men move another step closer to a first World Cup title.
England's start was emphatic, as they swiftly put Croatia on the back foot through a driving Dele Alli run, which Luka Modric had to stop on the edge of the area by fouling the Tottenham star.
And from the resulting free-kick, Alli's Spurs team-mate Trippier sumptuously found the top-right corner.
Croatia did their confidence little good in the 22nd minute when Danijel Subasic's poor kick went straight to Raheem Sterling, who found Harry Kane, but he ultimately shot wide after straying offside.
There was promise for England again soon afterwards, though Kane struck the post from close range and was adjudged – seemingly incorrectly – to be offside following Alli's incisive pass.
Although they saw more of the ball, Dalic's side initially struggled to offer a significant improvement after half-time and England had a penalty shout turned down just after the hour – Domagoj Vida getting a slight touch on the ball before sending Sterling tumbling.
Finally things came together for Croatia at the other end soon after, as Perisic met Sime Vrsaljko's deep cross with a flying left-footed finish.
And they nearly went ahead with their next attack – Perisic slamming against the right-hand post before Ante Rebic put the rebound into Jordan Pickford's hands.
A late Croatia onslaught was unable to complete the turnaround in 90 minutes and England stepped things up again in extra-time, almost retaking the lead when John Stones had a header cleared off the line by Vrsaljko in the 98th minute.
Pickford was similarly heroic at the other end, denying Mandzukic at point-blank range after the striker met Perisic's cross.
But Mandzukic came out on top soon after the break, latching on to Perisic's headed pass and sending a left-footed effort across Pickford to find the bottom-right corner, securing Croatia a return to the Luzhniki Stadium on Sunday for the final.
Key Opta stats:
- England have now been eliminated in four of their five semi-finals at major tournaments, losing each of the last four in a row.
- Croatia have qualified for their first ever World Cup final in their fifth appearance at the World Cup finals.
- Ivan Perisic has been involved in 10 goals at major tournaments for Croatia (six goals, four assists), the joint-most, level with Davor Suker (nine goals, one assist).
- Kieran Trippier’s goal after four minutes and 44 seconds was the fastest goal scored in a World Cup semi-final since 1958.
- Croatia became the first team to play extra-time in three consecutive World Cup matches since England in 1990.
- England scored nine goals from set pieces at the 2018 World Cup – the most by a team in a single World Cup tournament since 1966.