A shock 2-1 defeat to Croatia in their last Group D left the holders in second place and set up a second-round rematch of the 2012 European Championship final, which Spain won 4-0 in Kiev.
But far from be intimated by the prospect of coming up against Antonio Conte's men, midfielder Iniesta is relishing the challenge that awaits in Paris on Monday and believes it will bring the best out in a squad bidding to win the tournament for an unprecedented third time in a row.
"They're a powerful rival, a difficult rival, and [it will be] a good game," Iniesta said. "It's a game that will be useful to us if we are to keep developing and taking steps in these Euros.
"Aside from the final four years ago, all of our games have been very closely fought out. Italy have excellent players and a great defensive block we've known about for a long time.
"Contrary to what I hear people saying, they also improved a great deal in terms of possession and ball-handling. They really stepped up, which makes the game on Monday even more complex and our aspirations even more difficult.
"This is how things went, we lost and now we've got to deal with Italy. We must face this situation with the appropriate confidence, because I believe that if we play at our level then we have some good chances of passing [into the next round]."
Iniesta conceded that Spain would have preferred to win their group, as they have landed in the stronger bottom half of the draw as a result, with Germany potentially awaiting in the quarter-finals.
"It hasn't gone well, but we must continue, nothing has happened," the Barcelona star added.
"We're on the more complicated side [of the draw] in theory but we are Spain and we have to remain confident."