The Azzurri went down 4-2 in Salvador to finish as runners-up in Group A.
However, Giorgio Chiellini scored to get his team back in the game in the 71st minute before Christian Maggio saw a header come back off the crossbar.
Prandelli said that he was "very satisfied" with the performance despite Fred's 88th-minute goal wrapping up a 4-2 victory for the Selecao.
"We had a great performance in the second half and deserved an equaliser, but against great players it takes nothing for them to punish you," the 55-year-old told Rai Sport.
"I am very satisfied, as we played the second half with great character. The reaction was excellent, we attacked the space and on 3-2 we could've drawn level."
Italy could face Spain in the semi-finals.