Filippo Inzaghi broke the deadlock on the stroke of half-time before adding a second nine minutes from time.
Dirk Kuyt pulled one back in the final minute but Liverpool could not deny the Serie A giants a seventh European Cup success.
The irony for the Merseysiders was that they played better than they did when lifting the trophy in Istanbul two years ago only to go behind to a fluke goal.
Andrea Pirlo's free-kick struck Inzaghi, who was looking to collect any rebound off Jose Reina, and deflected past the diving Spanish keeper and into the middle of the net.
It was tough on the Premiership side who had looked dangerous with Jermaine Pennant and Bolo Zenden causing problems on the flanks.
Rafa Benitez' side on two occasions came close to capitalising on hesitancy by Marek Jankulovski.
When the Czech was slack in possession, Pennant seized upon it and forced Dida into a sharp low-save and later in the half, the full-back was dispossessed and the ball eventually fell to Kuyt whose goalbound effort was blocked.
Xabi Alonso had also hit a sweet drive just past the far post while hitherto the goal, Milan's only effort was a long-range shot from Kaka which was comfortably saved.
That goal gave the Rossoneri an obvious boost and they were quicker out of the blocks in the second-half with Liverpool lucky that an errant offside flag denied Kaka a clear sight at goal.
But then talismanic skipper Gerrard came close to an equaliser on two occasions.
After picking up a loose ball, he drove past Alessandro Nesta but was unable to open up his body enough to curl the ball into the far corner from the left channel and Dida got down to preserve his side's lead.
A 25-yard drive was then just a few inches wide of the far post before Inzaghi showed his predatory instincts to deliver a hammer blow to the large band of Liverpool fans in the Olympic Stadium.
Kaka threaded a precise ball through to the striker who tucked the ball under the advancing Reina to justify his inclusion at the expense of Alberto Gilardino.
Kuyt did give his side a glimmer when he nodded home from close range in the final minute but there was to be no dramatic comeback this year as Liverpool lost for just the third time in 11 European finals.