Suarez took advantage of slack defending to fire the ball past England keeper Joe Hart five minutes from time having been restored to the lineup after recovering from knee surgery.
He had given Uruguay the lead by nodding in Edinson Cavani's cross after 39 minutes before Wayne Rooney equalized in the second half with his first ever World Cup goal.
The result meant Uruguay joined Italy and Costa Rica on three points and left England at the bottom of the group after two straight losses. Italy play Costa Rica on Friday.
It was Uruguay's first win over European opposition at a World Cup since they beat the Soviet Union in the 1970 quarter-finals.
"I dreamed about this," said a sobbing Suarez. "I am enjoying this moment for all the criticisms that I had to take."
Suarez scored 31 goals in 33 games for Liverpool in the Premier League last season, and was named Player of the Year, but remains a highly controversial figure in England.
He received a 10-match ban at the end of the 2012/13 season for biting Chelsea's Branislav Ivanovic and was banned for eight games and fined 40,000 pounds ($68,000) for racially abusing Manchester United's Patrice Evra in December 2011.
Love him or hate him, there can be no denying Suarez is one of the most lethal finishers in football.
While England huffed and puffed around the box, clinical Suarez put away his only two clear chances.
"I thought defensively we held up well against him for long periods," said devastated England manager Roy Hodgson. "But two chances came his way and he took them well.
"The second goal was a defensive mistake on our part. We came here with great hopes but were unable to deliver. It's a major, major sadness for me," said Hodgson, who described England's chances of advancing as "unbelievably slim".
Rooney went close after half an hour when he met Steven Gerrard's inswinging cross but his close-range header smacked back off the woodwork while he landed in the net.
With England fans jeering Suarez's every touch, the stage was set for the striker to turn the game on its head.
A lucky break in midfield sent the ball out wide to Edinson Cavani and Suarez escaped the attentions of Phil Jagielka to nod back across Hart for a 1-0 lead.
Suarez, who had been well policed by England's center backs until that point, wheeled away with a huge smile on his face, kissing his wrists and gesturing frantically in delight.
After the break, Uruguay had England on the ropes and Cavani should have done better when put clean through by Suarez, but the rampaging forward screwed his shot wide.
England gradually regained the initiative with Rooney, widely criticized for his performance against Italy, at the heart of all their best work.
The number 10, who had never scored in the World Cup, picked up the scraps from a Leighton Baines delivery and brought a terrific save out of Muslera in the 55th minute.
Just when it looked like they would never find the net, Rooney breathed new life into England.
Fullback Glen Johnson worked his way into the box after delightful work by Daniel Sturridge, and his square ball was rammed home by Rooney at the far post, sending the massed ranks of England fans behind the goal into a frenzy.
England were in the ascendancy but when Gerrard failed to deal with Uruguay keeper Fernando Muslera's punt Suarez was away, outpacing Gary Cahill and slamming the ball past Hart.
Uruguay coach Oscar Tabarez outlined the importance of Suarez, who was Player of the Year in England, to his side.
"His team mates really love him, we all love him, he is a wonderful person and a very important player for our team," Tabarez told a news conference.
"This chance, this destiny, after I don't know how long, we've been able to win against a European team and both goals were scored by a player who was unable to play a couple of weeks ago. So of course we love him and I think he loves us."
England battled bravely for an equalizer but South American champions Uruguay held firm, picking up three points that could go a long way to putting them in the knockout stages.