Totti blasted home the penalty after defender Fabio Grosso had tumbled over Lucas Neill's challenge.
His dismissal took the total number at the tournament to 24. The previous record was 22 in France in 1998.
A closely-fought first half was just shaded by Italy, although the Socceroos were far from overawed in their first knockout game at the finals, despite missing the injured Harry Kewell and the suspended Brett Emerton.
Guus Hiddink's [ Images ] side made a confident start, keeping possession for the opening two minutes in a patient build-up involving some 25 passes before Marco Bresciano's cross was nodded wide by Mark Viduka.
Italy replied immediately with recalled striker Luca Toni, yet to break his duck at the tournament, rising above a static defence to nod Alessandro Del Piero's left-wing cross narrowly wide.
Toni's height was giving centre backs Craig Moore and Lucas Neill a few problems and recalled Australia keeper Mark Schwarzer twice came to his side's rescue with two good saves in as many minutes.
Alberto Gilardino forced Schwarzer to tip over his rising effort, the keeper following up in Italy's next attack by blocking Toni's low shot on the turn with his legs.
Australia countered with Scott Chipperfield testing Gianlugi Buffon for the first time.
Italy coach Marcello Lippi beefed up his attack for the second half, replacing Gilardino with Vincenzo Iaquinta but was forced to re-jig again after Materazzi's dismissal, sacrificing Toni for defender Andrea Barzagli.
Chipperfield stung Buffon's gloves again, while Tim Cahill headed over the bar when well placed from a corner.