Ireland captain Andy Balbirnie (62) guided his team to 92-1 after 10 overs until a mid-order collapse saw them all out for 157 with four balls remaining.
However, England fell to 29-3 in the first five overs with only one boundary, as the Irish bowlers found pace and movement, and they battled to gain momentum.
The first 18 minutes of the game were lost to rain, and Moeen Ali was just getting into his stride when the players were hauled off again with England on 105-5 after 14.3 overs.
When the game was called off a few minutes later, England trailed by five runs under the DLS scoring system, giving Ireland a historic victory.
It was Ireland’s second major upset of the competition, following their elimination of the defending champions in the first round.
After opening their campaign with a five-wicket victory over Afghanistan over the weekend, England were among the title favorites and favored to defeat Ireland.
Group 1 is now wide open, with Australia, Sri Lanka, Ireland, and England all holding a record of one victory and one loss. Afghanistan and unbeaten New Zealand play later on Wednesday.
In stark contrast to Sunday, when 90,000 spectators witnessed India’s stunning last-ball victory over Pakistan, the MCG was strangely silent for the toss as the morning drizzle cleared.
England’s captain, Jos Buttler, sent Ireland into bat, and dangerous opener Paul Stirling was dismissed by Mark Wood for 14 by Sam Curran on the boundary.
Wood’s bowling speed of 154kph (96mph) was the quickest in the event thus far.
He caught Balbirnie on the finger, necessitating care, but the Irish skipper persevered, he and Lorcan Tucker consistently finding the boundary.
Their alliance ended after Tucker’s score reached 34.
Two balls later, Harry Tector was caught behind by Buttler off Wood, but Balbirnie maintained his composure, earning his fourth T20 fifty before holing out to Alex Hales off Liam Livingstone.
The next delivery from Livingstone resulted in the dismissal of George Dockrell, and Wood’s third wicket fell to Curtis Campher (17).
Mark Adair’s deep-field catch allowed Livingstone to match Wood’s three-wicket haul.
Buttler edged the second ball he saw from the dangerous Josh Little to wicketkeeper Tucker, and the out-of-form Alex Hales was then dismissed by Little in the third over.
Ben Stokes, so frequently the hero, lasted only eight deliveries before being bowled by Fionn Hand, who was favored over spinner Simi Singh, leaving England in a dire situation.
They limped to 64-3 after 10 overs, which marked the halfway point of their innings, and Harry Brook (18) was the next to fall, pulling George Dockrell to Gareth Delay at midwicket in the next over.
Dawid Malan was dropped twice in two balls on 23, but he was eventually dismissed for a shaky 35 after top-edging Barry McCarthy to Deep Hand.
Ali (24 not out) commenced his batting before the rain arrived to spoil England’s aspirations.