Paraguay looked more dangerous in the first 45 minutes as Franciso Arce sent a powerful 25-meter free kick to the target, which was two-fisted out by German keeper Oliver Kahn in the 21st minute.
In the 36th minute, Paraguay defender Celso Ayala mishit a golden chance in the penalty box following wonderful work by his teammates deep in German territory.
Germany's best chance in the first half came in the 32nd minute when striker Miroslav Klose fired over from a Marco Bode pass.
The Germans started the second half aggressively. Schneider sliced open the defense to strike into the arms of Paraguay keeper and captain Jose Luis Chilavert two minutes after the break.
At the 50th minute, Campos ran down the left flank to fire an angled shot which was blocked by Khan.
At the 62nd minute, Neuville struck at the edge of the penalty box, forcing Chilavert to make a brilliant diving save.
"It was Germany's lucky day today," said Chilavert.
"We lost but we played well. Germany didn't play better than us. We matched them all the way," he added.