Two goals from Mario Mandzukic and one from Nikica Jelavic put Croatia in control of Group C after Spain and Italy's 1-1 draw and left Ireland with a mountain to climb.
Sean St Ledger's header had earlier cancelled out Mandzukic's opener but goalkeeping and defensive errors ultimately proved Ireland's undoing as their 14-match unbeaten run was ended at the 43,000-capacity Municipal Stadium on Sunday.
It was arguably a must-win game for Ireland before Thursday's showdown with reigning world and European champions Spain.
And it was a difficult night for unfortunate keeper Shay Given as Mandzukic quickly opened the scoring with a third-minute header.
After Jelavic cancelled out Sean St Ledger's 19th-minute equaliser, Mandzukic saw his second-half attempt come back off the post and end up in of the net after ricocheting off Given's head.
This is Ireland's third competitive defeat during Giovanni Trapattoni's four-year tenure and the first on foreign soil.
We conceded sloppy goals which is unlike us, we are usually pretty tight.
Sean St Ledger
St Ledger told ITV: "The second one was dubious, it could have been offside and we thought it was a foul.
"We had to come out in the second half and the next goal was important.
"Obviously they got it and when you are 3-1 down to a side like Croatia it's always going to be tough.
"It was unlike us the goals we conceded. I wouldn't say Croatia split us open but they were poor goals to concede."
Croatia started better and received their reward when captain Darijo Srna's right-wing cross clipped full-back Stephen Ward and sat up for Mandzukic.
The striker had slipped as Srna prepared to deliver, but managed to right himself and head towards the bottom corner.
His effort looked to lack power, but Given, whose fitness had been a major talking point for the previous three weeks, could not get to the ball in time.
Relief arrived for Ireland, firstly in the shape of striker Kevin Doyle and then St Ledger with 19 minutes gone.
Doyle forced Vedran Corluka to concede one of a series of free-kicks.
McGeady's delivery to the far post was firm and with Corluka out of position, St Ledger crept in front of him to head the Republic level from close range.
But with two minutes of the half remaining, Croatia were back in the lead.
Modric cut inside Robbie Keane to fire in a long-range shot which was blocked, but in his haste to clear, Ward could only slice the loose ball to the delighted Jelavic, who easily beat Given from close range to restore his side's advantage.
Given's luck deserted him totally within three minutes of the restart when Mandzukic powered a header towards goal from a Perisic cross and saw the ball come back off the post, hit the keeper on the head and fly into the net.
Trapattoni made a double substitution just eight minutes into the second half when he replaced Doyle and McGeady with Jon Walters and Simon Cox, and the latter sent a long-range effort high over Stipe Pletikosa's crossbar within seconds of his arrival.
The Republic should have been awarded a 63rd-minute penalty for central defender Gordon Schildenfeld's crude challenge from behind on Keane, although Dutch referee Bjorn Kuipers took a different view.
Dunne headed a 68th-minute Duff free-kick straight at Pletikosa.
Midfielder Ivan Rakitic curled a 77th-minute shot inches wide and Keith Andrews powered a header agonisingly past the post in stoppage time.
This is the Republic's first major tournament for a decade and their first Euro finals since 1988.