The Azzurri, reduced to 10 men after Claudio Marchisio's 59th-minute red card, were sent packing after Diego Godin headed in a late winner at the Arena das Dunas stadium, reports Xinhua.
It was the second consecutive time that Italy has failed to advance beyond the group stage after winning the tournament for a fourth time in 2006.
"After the match I spoke with the president of the (Italian) federation and told him that I resign because I am responsible for the team's elimination," Prandelli said at the post-match press conference.
"It's my responsibility and my fault. When the game plan fails the person responsible must go."
Prandelli assumed the Azzurri's top job after the 2010 World Cup and guided them to the final of Euro 2012.
His resignation came less than a month after the 56-year-old signed a new deal that extended his contract to July 2016.
Earlier, Prandelli told Sky Sport Italia that he did not blame Marchisio for the high tackle that earned him the red card.
"It didn't seem like a red card offence," Prandelli said.
"There were some tough tackles, but not worthy of a red card. It was a very balanced game, Uruguay never really had a shot on goal despite needing to win.
"It's a great shame that we go out in these circumstances."