Despite an excellent effort against the English team, the Super Falcons lost on penalties in Brisbane.
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Despite having the better chances throughout, the European Champions crept home in front of 50,000 fans after the match had ended 0-0 at the end of extra time.
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England hung on when playmaker Lauren James was sent off for an unnecessary stamp, but they will know they must improve if they are to add the World Cup to their European title.
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Beth England made no mistakes, but Nigeria’s Michelle Alozie fired over the top to give England a lead they never relinquished, and Chloe Kelly calmly converted to secure the victory.
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The game ultimately went to extra time, with Nigeria looking the more likely to win, with Michele Alozie and Oshoala both going close, but neither team was able to break the tie.
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The Lionesses, who won the European Championship at Wembley Stadium in London last year, were predicted to easily defeat the world’s 40th-ranked squad.
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Jessica Carter (L) and Nigeria’s forward Rasheedat Ajibade (15)
England’s penalty shootout got off to a bad start when Georgia Stanway blasted wide, but Desire Oparanozie couldn’t capitalise and missed with an almost identical effort.
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On Saturday, they will play either Colombia or Jamaica for a place in the semi-finals.
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