England led the best-of-three finals series 1-0 after their win in Melbourne on Friday and while the total fell short of what they would have wanted, it was still likely to challenge the Australians at a ground where recent one-day history has strongly favoured the side batting first.
After the English lost their way following a second rain delay, Collingwood and captain Andrew Flintoff put on 97 for the fifth wicket to steady the innings and ensure they posted a competitive score.
But the English would have been disappointed they did not ultimately post a bigger total, poor running between the wickets proving costly as they fell away late.
The English did not accelerate in the latter stages after losing the powerful Flintoff in the 43rd over, making just 37 runs from the last seven overs.
Collingwood was coming off successive centuries and again batted with great assurance, making a chanceless 70 before being caught behind attempting a cheeky reverse sweep off seamer Nathan Bracken (2-38).
Flintoff made 42 before falling to a freak return catch by fast bowler Brett Lee.
The England allrounder struck a drive sweetly but Lee took a superb reflex catch in his follow through.
It proved to be a major blow for England, who struggled after his dismissal against some tight bowling and desperate fielding.
Fittingly, the last over was bowled by veteran Australia pace bowler Glenn McGrath, in his final game for his country at his home ground.
McGrath (2-41) sent the crowd into raptures when he claimed a wicket with his last ball, Paul Nixon caught by Brad Hodge on the midwicket boundary for six.
There was no doubt muddled running between the wickets cost England a bigger score.
Mal Loye, Ian Bell and James Dalrymple were all run out and all were well out of their ground.
Australia appeared in real strife when the players were forced off by rain for a second time in the 19th over.
England were cruising at 79-1, but the home side regrouped during the break and produced some superb fielding when they returned.
From the first ball after the resumption, opener Loye, who was just starting to look good and was on 45, called for a suicidal single after Ian Bell nudged the ball to gully.
Matthew Hayden pounced and his direct hit found Loye well short of his ground.
Andrew Strauss came and went quickly, before another poor call saw Bell run out for 26 by a Mike Hussey direct hit from point.
Suddenly, England were 112-4 and the Australians were rejuvenated.
England 246 for 8 in 50 overs (Paul Collingwood 70, Mal Loye 45, Andrew Flintoff 42, Ian Bell 26; Nathan Bracken 2 for 38, McGrath 2 for 41, Brett Lee 1 for 53) Vs Australia (yet to bat)