The Americans, who were hoping to become the first team to win back to back World Cup and Olympic gold medals, were sent crashing out of the tournament, after penalties were the only thing that could separate the two sides in the first quarter final of the evening.
Pia Sundhage's native Sweden have reached the quarterfinal at both the 2008 and 2012 Olympics, but faced a stern challenge from the United States in Brasilia.
The former US manager's side opened the scoring in the second half courtesy of substitute Stina Blackstenius. Jill Ellis' team fought back in the latter stages and equalised through Alex Morgan to send the tie into extra time, but even that couldn't put anything between the teams.
Sweden ran out victorious in the penalty shoot-out, Alex Morgan and Christen Press both missed their spot kicks before Lisa Dahlkvist sent the Swedes through to the semi's.
Nothing to split the teams in the first half
As expected the first 45 minutes was a cagey affair, with the Swedes unsurprisingly parking the bus to stifle the American attack and breaking against the run of play at any available opportunity.
Jill Ellis utilised her preferred starting eleven against Sweden, bringing back in midfield duo Allie Long and Tobin Heath, Julie Johnston and Meghan Klingenberg returned to the backline, whilst Alex Morgan stepped back in to her leading role up front.
Sweden have appeared in every Olympic Games since they made their Olympic debut in Atlanta in 1996. And their hopes of progressing to the semi-finals were nearly cut short prematurely as an early chance for Morgan Brian was whiskers away from giving the USWNT the lead.
A corner for the US dropped kindly to the Houston Dash midfielder amongst the mayhem of a crowded six-yard box, where she struck a sweet half-volley towards the top right hand corner, only for keeper Hedvig Lindahl to tip the opportunity over the bar.
The Americans showed more attacking intent in the first half, dominating with 72% of the possession, but Sweden continued to stick to their game plan in order to shut down and frustrate the retaining Olympic and World champions.
Sweden, who have made it through to the knockout stages at every Olympics since the Athens games in 2004, were forced into an early change as Stina Blackstenius replaced the injured Fridolina Rolfo, who left the field in tears.
The best opportunity of the first half fell to Alex Morgan, she was set up by Mallory Pugh before taking the ball around the keeper. Unfortunately, the angle was too narrow for the Orlando Pride striker to convert.
Sweden stick to Sundhage's gameplan
The US became increasingly frustrated after the break, finding it progressively more difficult to break down the Blue and Yellow's defence. Sundhage's plan worked to perfection and paid off in the 61st minute as Sweden took the lead courtesy of substitute Blackstenius. The Linkopings forward split the centrebacks against the run of play to latch onto the long ball and finished with ease, slotting past the oncoming Hope Solo.
It was now or never for Jill Ellis and substitutes beckoned for the US, to help them salvage the remainder of their Olympic tournament. Crystal Dunn came on for central midfielder Long and caused an immediate impact. The Swedish defence struggled to defend against her direct play and the Washington Spirit striker gave the US an instantaneous spark going forward.
Now or never for the US
Megan Rapinoe, the player who only returned to action for the first time against Colombia after suffering an ACL injury in December of last year, replaced Kelley O'Hara as Ellis threw everything at the last quarter of normal time.
And, it was Rapinoe dispossessing a Sweden player on the half-way line which lead to the vital equaliser. A great ball into the box, intended for Dunn, deflected off a Sweden defender and fell to the feet of Alex Morgan - who capitalised first time and slotted the ball into the back of the net, to the relief of the defending champions.
Regulation time can't split the two teams
Sweden and the US thought they had taken the lead in extra time, only for the referee to disallow opportunities for both Lloyd and Lotta Schelin. The first chance fell to the US captain - who thought she had headed her team to victory in the 114th minute - but was adjudged to have man-handled an opposition defender in the box.
Sweden went straight up the other end and had a chance of their own yet were also denied by the referee. Schelin was called for offside after finding the back of the net in a controversy decision by the main official.
Penalties were the only thing that could separate the two teams in Brasilia. After both goalkeepers made saves in the first four kicks, substitute Christen Press sent her spot kick over the bar and Lisa Dahlkvist stepped up to score the decider to send Sweden into the semi-final.