Fabio Carvalho put the Reds into the lead inside the opening 40 seconds in the United Arab Emirates, before Mohamed Salah was denied from the penalty spot soon after.
Alexandre Lacazette equalised for the French side before the break, capitalising after Caoimhin Kelleher and Andy Robertson got into a mix-up that allowed him to roll the ball into an empty net.
Bradley Barcola then fired Lyon ahead in the 66th minute when he came off the bench to sweep in their second of the night at Al-Maktoum Stadium. Lacazette later wrapped up the scoring, hammering into the net from 10 yards out.
Tournament rules meant a penalty shootout followed full-time, with Lyon prevailing 5-3 to claim an extra point.
Team news…
Liverpool named a strong line-up for their first action since November 12. James Milner skippered a side that also contained Salah, Robertson, Roberto Firmino, Thiago Alcantara, Joe Gomez and Joel Matip.
Naby Keita was included on the bench.
Liverpool: Kelleher (Adrian, 46), Milner (Corness, 61), Matip (Phillips, 46), Gomez (Chambers, 61), Robertson (Tsimikas, 46), Bajcetic (Clark, 46), Thiago (Keita, 61), Elliott (Frauendorf, 29 [Ramsay, 46]), Carvalho (Oxlade-Chamberlain, 46), Salah (Doak, 61), Firmino (Stewart, 61 [Cain, 73]).
Unused subs: Mrozek, Davies, Quansah.
The action…
Fewer than 40 seconds had elapsed when Liverpool took the lead in Dubai.
Salah was sent into space in the area by Firmino, beat Castello Lukeba to the ball and nudged it across goal into the path of Carvalho, who swept in.
The Reds were looking lively – and soon after, they were presented with the chance to extend their lead from the spot when Firmino was tripped by Malo Gusto when trying to reach Salah’s chip into his path.
The Egyptian assumed responsibility for the spot-kick as usual; however, was thwarted by a save from Anthony Lopes.
Just prior to the half-hour, Harvey Elliott miscued a shot on the edge of the area before being replaced by Melkamu Frauendorf.
In the 35th minute, Kelleher was called into action for the first time on the night when he was required to repel an edge-of-the-area blast from Lacazette.
However, he could not prevent the former Arsenal forward from levelling shortly after when a mix-up between the Liverpool ’keeper and Robertson at a through ball presented him with a chance to roll into an empty net.
The Reds elected to make a handful of changes during the break – and it was one of those introduced from the bench that went close at the start of the second period, with Calvin Ramsay zipping a low shot just past the post after cutting in from the right.
Salah then had a swipe from a corner blocked by Malo before Nat Phillips’ drive was deflected over the bar.
Liverpool made multiple alterations just after the hour, one of which saw Keita return to action for the first time since the Community Shield win over Manchester City on July 31.
However, Lyon went in front when a substitute of their own – Barcola – lashed home a ball across the box at the back post.
The Reds’ response saw Keita’s turn-and-shot cannon against a defender inside the area after a neat exchange with Ben Doak.
As the game entered its final quarter, Barcola rattled the post and Tete failed to convert the rebound. Adrian was then needed to save from Sael Kumbedi to ensure Lyon did not further their advantage.
Nevertheless, Laurent Blanc’s side did get a third when Lacazette hammered in after Adrian had deflected Kumbedi’s shot away with his boot.
The penalty shootout that subsequently followed was also won by Lyon, prevailing 5-3 in spot-kicks for an additional tournament point.