The 37-year-old, once a top-10 player but these days sporting peroxide blond hair and ranked 94th, beat Ruud 6-4 7-5 6-7 (1-7) 6-3 at Wimbledon.
Sinner subsequently joined his compatriot in the third round, winning a hard-fought all-Italian clash 7-6 (7-3) 7-6 (7-4) 2-6 7-6 (7-4).
Berrettini, a Wimbledon finalist in 2021 but currently ranked 59th as he climbs back after six months out with injury, took the world No.1 to a tie-break in the first two sets.
He then showcased his grass-court expertise to race to the third set.
When he took an early break in the fourth it looked as if Wimbledon's late-night curfew could come into play, but Sinner broke back immediately and slowly wrestled back control of the match.
A third tiebreak was needed after Berrettini saved match point when serving at 5-6 in the fourth and pulled back to level.
But the seemingly nerveless Sinner yet again prevailed in the breaker, to take his record against his fellow Italians to 14-0.
Jannik Sinner celebrates after defeating fellow Italian Matteo Berrettini. (AP PHOTO)
"I knew I had to raise my level," Sinner said.
"He played final here, he is a grass-court specialist and I was looking forward to it.
"It was a challenge but I am very happy with how I handled the situation."
Fognini had appeared to be on the brink of a straightforward victory against a flat-looking Ruud when he led 5-2 and 30-0 in the third set with a double break - but he twice failed when serving for the match.
Norwegian Ruud dominated the tie-break to extend the match but Fognini regained control in the fourth set and sealed victory with his fourth match point.
Fognini is now into the third round at Wimbledon for the seventh time in his 14th visit, although he has never gone further.
Back in 2019 his frustration on the grass was such he was fined $US 3000 for suggesting Wimbledon "should be bombed" during an on-court outburst.
"Maybe 14 is the lucky one," Fognini said.
"I was 5-2 up and the match was almost done but then at 5-4 too many things were coming into my head.
"But this is why I love and hate this sport. In the end he's top 10 and I'm 37 and today was a good present for me."
Russian fifth seed Daniil Medvedev fell a set down to France's Alexandre Muller, but rallied to win 6-7 (3-7) 7-6 (7-4) 6-4 7-5.
Fifth seed Daniil Medvedev came back from a set down to defeat Alexandre Muller. (AP PHOTO)
Frances Tiafoe beat Croatia's Borna Coric 7-6 (7-5) 6-1 6-3 and now meets Carlos Alcaraz, who defeated Australia's Aleksandar Vukic 7-6 (7-5) 6-2 6-2.
Three other seeds fell.
Francisco Cerundolo (26) lost to Roman Safiullin in five sets, as did Tallon Griekspoor (27) to Miomir Kecmanovic.
Zhang Zhizhen (32) went down in four to Jan-Lennard Struff.
But there were no problems for Tommy Paul (12), Ugo Humbert (16), Alejandro Tabilo (19), Karen Khachanov (21) and Alexander Bublik (23), who all progressed.
