Australia had the ascendancy for most of the first half but squandered chances before world No.8 Sweden re-grouped to dominate the group C match at Albufeira.
Kyah Simon had Australia’s best first-half opportunity when Perth Glory’s Sam Kerr coasted past two defenders to find the Sydney FC attacker, who blazed her shot over the bar after half-an-hour.
Australia’s defence will be a focal point for improvement in future matches at the invitational tournament, with the Swedes catching Australia napping after the break but missing golden chances to begin the half.
The Europeans broke the deadlock in the 60th minute, with captain Lotta Shelin charging down the right side and beating defender Elise Kellond-Knight before finishing at a tight angle.
In their first match since their Rio Olympics quarter-final loss to Brazil last year, the world No.6 Matildas pressed for a late goal but disjointed attacks cruelled their prospects.
A cracking strike by Simon with just over 20 minutes remaining was tipped over the bar by Sweden stopper Hedvig Lindahl.
Sweden had an opportunity to extend their lead in the 70th minute, hitting the post after Australia’s defence was all at sea in defending a cross.
Some slick passing in the forward third provided a chance to equalise late, but Lindahl denied Kerr’s attempted chip to snuff out Australia’s charge.
Australia face the Netherlands in their next match on Friday (Saturday morning, Australian time) before facing China PR three days later.
Help our journalists uncover the facts
In times like these InDaily provides valuable, local independent journalism in South Australia. As a news organisation it offers an alternative to The Advertiser, a different voice and a closer look at what is happening in our city and state for free. Any contribution to help fund our work is appreciated. Please click below to donate to InDaily.