Roberto Martinez’s men were already through ahead of kick-off in Arena AufSchalke, meaning he had the chance to make changes in the third and final game of their knockout stages, resting City trio Bernardo, Dias and Cancelo.
After a 2-1 win over the Czech Republic and a 3-0 victory over Turkey, the 2016 winners wanted a hat-trick of triumphs.
But goals from Khvicha Kvaratskhelia and Georges Mikautadze meant the sixth ranked FIFA team finished the initial stages with four points from three in first place, ahead of Turkey in second and Georgia in third – who both progress – while Czech Republic exit the competition after finishing fourth.
The game didn’t start well for Portugal as they conceded a first goal inside two minutes, Kvaratskhelia racing through before producing the neatest of finishes from close-range.
Portugal had their chances to level in the first half, Ronaldo – who had earlier been denied a penalty - sending a screamer goalwards from 30 yards on 17 minutes but Georgia goalkeeper Giorgi Mamardashvili showed his own credentials to keep it out the net.
Antonio Silva, meanwhile, had a header fly over at the back post on 21 minutes after a superb centre from Joao Felix on the right.
Ronaldo had a close-range effort well blocked after being played in by Joao Palhinha on 35 minutes and moments later there was a brilliant opportunity for Georgia to double their lead.
Goalscorer Kvaratskhelia sent a teasing cross into the box and Giorgi Gvelesiani produced a glancing header that went marginally wide.
Just before the break, Palhinha fired wide after a beautiful move to set up the chance.
Ronaldo almost put Portugal level on 47 minutes but for a brilliant block by Lasha Dvali.
Kvaratskhelia should have put Georgia 2-0 up on 50 minutes but he scuffed his chance while Diego Dalot’s 20-yarder was amazingly tipped away by Giorgi Mamardashvili on 53 minutes.
Georgia did double their lead just before the hour mark from the spot, Mikautadze scoring the penalty after VAR intervened and insisted Luka Lochoshvili had been felled by Antonio Silva.
Otar Kiteishvili released Girogi Chakvetadze on 73 minutes as Georgia eyed a third but he blasted high and handsome with the goal at his mercy.
Matheus Nunes came on in the 75th minute for his first involvement of the tournament to date as he replaced Joao Neves.
He had a good chance to reduce arrears on 81 minutes, getting his leap wrong as he looked to meet a beautiful cross from the left.
Nelson Semedo almost set up a grandstand finish as he met a deep ball into the box in stoppage time but Mamardashvili did well to palm away.
Regardless of the result, Portugal have qualified for the knockout stages in all of their nine appearances at the Euros, the longest 100% record in the competition’s history.
Portugal face Slovenia in the Round of 16 on Monday 1 July, with an 20:00 (UK) kick-off.
