City were competing for the Bortolotti Trophy in an invitation match hosted by Atalanta.
Richard Garcia twice pulled City level. With the score at 2-2 the match was decided on penalties.
Atalanta scored their first, then Bernard Mendy hit the bar. Tony Warner saved before Craig Fagan levelled the scores. However, Warner was beaten twice while Andy Dawson saw his shot saved and George Boateng hit the crucial penalty against the post.
Hull City line-up: Tony Warner; Bernard Mendy, Steven Mouyokolo, Ibrahima Sonko, Liam Cooper; Richard Garcia, George Boateng, Dean Marney, Will Atkinson; Geovanni (Craig Fagan, 73 mins), Jan Venegoor of Hesselink (Nicky Featherstone, 60 mins).