Chasing Ireland’s tally of 157, England had Moeen Ali and Liam Livingstone in the crease and needed 53 runs from 33 balls to win when rain hit the Melbourne cricket ground.
At that point, the Duckworth-Lewis-Stern method, which calculates a team’s target score when rain stops a game, stepped in to give Ireland a five-point win.
The result means England, one of the favorites to win the tournament, will likely have to beat defending champions Australia on Friday in order to reach the semi-finals.
Andrew Balbirnie led the scoring for Ireland with a stunning 62 from 47 balls, while Lorcan Tucker added 34 as England bowlers failed to gain an advantage in Wednesday’s game.
And when Josh Little retired Jos Buttler for a duck and Alex Hales for seven before Ben Stokes was beaten by Fionn Hand, England suddenly found themselves with a huge task to turn the tide.
Dawid Malan battled 35 from 37 and Ali easily found the limit in a quick shot 24 from 12 when the rain came, but it proved too little too late.
England, ranked 10 places above Ireland in the T20 standings, will need to be much better in matches against Australia, New Zealand and Sri Lanka to progress in the tournament.
Ireland, meanwhile, are level on points with England and next face Afghanistan in a winnable game that could keep the team’s hopes of reaching the semi-finals alive.