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Australia wasted a great start by captain Aaron Finch and David Warner against England to be limited to 285-7 at Lord's.
Australia was 185-3 in the 36th over after Finch was out for 100, his second century of the tournament. A big 300-plus score was on the cards but the batsmen conspired to get themselves out.
Finch and Warner, who made 53, shared 123 in their third century stand of the tournament, making England's gamble to bowl first apparently backfire.
But England rallied from the Finch wicket on. The only other major contributors were Steve Smith and Alex Carey, who both made 38.
The wickets were shared by five bowlers, with paceman Chris Woakes returning the best figures of 2-46.
Australia has successfully bowled second on all four previous occasions in the tournament, including its last three matches when it defended 307 against Pakistan, 334 against Sri Lanka, and 381 against Bangladesh last Thursday. The Australians also defended 288 against West Indies before losing to India batting second.
England has lost two of its three chases, including a target of 233 against Sri Lanka last Friday.
England bowl against Australia in World Cup
England captain Eoin Morgan won the toss and decided to bowl against champions Australia in a World Cup group match at Lord's on Tuesday.
A green-tinged pitch and overcast skies promised to assist England's pace attack as the hosts looked to bounce back from their 20-run defeat by Sri Lanka.
England retained the same side that lost at Headingley, with fast bowler Jofra Archer passed fit after feeling some tightness in his left side.
Archer is the tournament's joint leading wicket-taker with 15 at an average of 17.93.
"It's not a no-brainer to bowl first, but the pitch is soft on top and we haven't seen as much sun as we liked," said Morgan at the toss.
"Hopefully it'll help us this morning and as the sun comes out, be better to bat on this afternoon," added Morgan, who plays for Lord's-based county side Middlesex.
"It's important to remain calm and objective after the Sri Lanka game."
Australia made two changes from the side that Bangladesh by 48 runs in Nottingham, with off-spinner Nathan Lyon making his first appearance of the tournament in place of leg-spinner Adam Zampa.
Jason Behrendorff replaced fellow paceman Nathan Coulter-Nile.
"I still wasn't quite sure what to do," said Australia captain Aaron Finch. "I would have bowled but we're not too disappointed to be batting.
"We've played consistent cricket throughout without being outstanding," added Finch, with Australia having lost just once at the tournament so far, to India.
"We've kept improving nicely. You can't take any game lightly or any opposition for granted."
Only the top four at the end of the 10-team round-robin stage will qualify for the semi-finals.
Australia are currently second in the table.
England, who have also lost to Pakistan, are fourth but any more slip-ups for Morgan's men in their three remaining pool games against Australia, India and New Zealand could imperil their chances of reaching the knockout stages.
England, however, have won 10 of their past 11 one-day internationals against Australia.
England: Jonny Bairstow, James Vince, Joe Root, Eoin Morgan (capt), Ben Stokes, Jos Buttler (wkt), Moeen Ali, Chris Woakes, Adil Rashid, Jofra Archer, Mark Wood
Australia: David Warner, Aaron Finch (capt), Usman Khawaja, Steve Smith, Glenn Maxwell, Marcus Stoinis, Alex Carey (wkt), Pat Cummins, Mitchell Starc, Jason Behrendorff, Nathan Lyon
Umpires: Chris Gaffaney (NZL), Sundaram Ravi (IND
TV umpire: Kumar Dharmasena (SRI)
Match referee: Ranjan Madugalle (SRI)
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