The Socceroos fought back from a decidedly dicey opening half when Tom Rogic scored another belter to cancel out Lars Stindl's opener.
Julian Draxler's penalty and Leon Goretzka's goal which came minutes either side of halftime sealed Australia's fate, though Tomi Juric did scramble home a consolation goal.
The best and worst of Ange Postecoglou's side was on display in Sochi.
The opening half-hour saw Australia on the ropes, with Stindl's fifth-minute opener bringing fears of a belting.
The 28-year-old found an acre of space to volley Julian Brandt's cut-back past Mat Ryan and the inattentive back three.
But Germany's failure to cash in on early chances allowed Rogic to rifle home a 41st minute equaliser.
The Canberran - clearly Australia's best player - kept his composure to score at the second attempt from long range, after his first was blocked - to shock the 28,605 at the Olympic Stadium.
Parity lasted all of three minutes.
An out-of-sorts Massimo Luongo lunged at man-of-the-match Goretzka in the box and Draxler's penalty ensured Germany went into the halftime break ahead once more.
Two minutes after the break, a dazzling through-ball from Joshua Kimmich put Goretzka through to thrash past Ryan at close range.
Then, an Australian lifeline.
Another fine Rogic run drew a free-kick which Juric scrambled home when goalkeeper Bernd Leno fumbled.
But there was to be no off-the-canvas third for Postecoglou's side, which finished stronger but left themselves too much to do.
The first-up loss makes it difficult to see Australia getting out of the group, with taxing matches against Cameroon and group leaders Chile to come.