Costa Rica's 1-0 win over the Italians yesterday left them needing at least a point against Uruguay in their final Group D game to avoid a repeat of their first round exit at the South Africa World Cup in 2010.
Italy started with a solid 2-1 defeat of England, but Prandelli is now worried.
He rejected claims that the heat and humidity in Recife had played a factor in the defeat. "It was no excuse," said the 56-year-old.
"We had the wrong approach, our pace was too slow. It wasn't the best approach," added Prandelli.
"Costa Rica were well organised, quick and good at winning the ball. After we conceded the goal, we just couldn't get back into it."
Prandelli added: "I'm sure we are going to step up a notch (for Uruguay). We have to, otherwise we are out."
Striker Mario Balotelli missed two first half chances set up by midfielder Andrea Pirlo, who was marked closely throughout as Costa Rica shut out through balls to the forwards.
"If we'd have scored those two goals, we'd have been looking at a different game," Prandelli said.
But two minutes after seeing strong claims for a penalty waved away, Costa Rica stunned the Italians.
Gianluigi Buffon, who missed the England win due to an ankle knock, failed to come for a Junior Diaz cross to the far post and Fulham forward Bryan Ruiz produced a superb header which beat the 2006 World Cup winning goalkeeper.
Prandelli made a series of changes, with Antonio Cassano and Lorenzo Insigne notably replacing Thiago Motta and Antonio Candreva.
But it did not spark the Italians, who had to charge back to thwart Ruiz and late substitute Marcos Urena from adding a second goal.
Before Tuesday's decider in Natal, Prandelli says he will be working to help the team get over the shock of defeat and to strengthen them physically to take on a Uruguay side that stormed to a 2-1 win against England on Thursday.
"It's going to be an especially challenging match," said Prandelli. "We played them last year in Confederations Cup and after we played well for 35 minutes, they took over.
"But right now, we have to chase all negative thoughts away.
"We have to prepare from a mental and psychological point of view. And we need to recover our energy and spirit."