European champions Spain are unlikely to fear Chile, Switzerland or Honduras and three-time winners Germany will take on Serbia, Ghana and Australia.
The Netherlands, ranked number three in the world, must navigate their way past Denmark, Cameroon and Japan.
Two-time champions Argentina are pooled with 2004 European champions Greece, Nigeria and South Korea.
As with every World Cup since 1998, teams must finish in the top two in their group to qualify for the knockout phase.
Fifa announced on Thursday that the winners of the 2010 tournament, which takes place between 11 June and 11 July, will receive £18.6m ($31m).
England's group 'not so bad' - Capello
That is an increase of 61% on the 2006 finals, while teams who get knocked out in the group stage are to pocket £5.4m ($9m).
England's seeding as one of the eight top teams in the competition meant they would always avoid Brazil, Spain, Holland, Italy, Germany and Argentina and South Africa in the group stage.
Their only previous World Cup meeting with the USA - a 1-0 defeat in 1950 - ranks as one of the biggest shocks in the tournament's 80-year history, and they have never played Algeria or Slovenia on world football's biggest stage.
But England can lay claim to victories over the USA and Slovenia under Capello at Wembley.
Supporters piled into a fans festival on Long Street in Cape town
"It's not so bad," the Italian told BBC Sport. "We played against the USA and Slovenia at home - we played well, we won, but when we have to play here in June it will be difficult.
"Algeria beat Egypt (in a World Cup qualifying play-off) and will not be easy; they have a really good team now. When you play at the World Cup, every game is not easy."
Asked if he feared England, USA coach Bob Bradley told BBC Sport: "No, not at all. It's big. Algeria and Slovenia are teams that maybe aren't the biggest teams in some ways, but came through with great efforts to get here."
If England emerge from Group C they will play either Germany, Serbia, Ghana or Australia for a place in the quarter-finals.
South Africa will get the tournament started against Mexico at Ellis Park, Johannesburg, on 11 June 2010.
"I don't envy the Mexicans, who are going to be subject to 90,000 vuvuzelas," said South Africa defender Matthew Booth, referring to the loud horns that Bafana Bafana supporters bring to matches.
The star-studded draw ceremony, held at the Cape Town International Convention Centre, began with a video message from revered former South Africa president and Nobel Peace Prize winner Nelson Mandela.
"Sport has the power to inspire and unite people," said 91-year-old Mandela. "In Africa, soccer enjoys great popularity and has a particular place in the hearts of people.
"This is why it is so important that the Fifa World Cup will for the first time ever be hosted on the African Continent in 2010. We feel privileged and humble that South Africa has been given the singular honour of being the host country."
South Africa's Oscar-winning actress Charlize Theron brought a touch of Hollywood glamour to proceedings, alongside England midfielder David Beckham, Ethiopian athletics legend Haile Gebrselassie and Springboks rugby union captain John Smit.
Makhaya Ntini, the first black cricketer to play for South Africa, and World Cup icons Franz Beckenbauer, Michel Platini, Eusebio and Roger Milla were present, with entertainment coming from the likes of the Soweto Gospel Choir and singers Angelique Kidjo and Johnny Clegg.
2010 World Cup draw
Group A: South Africa, Mexico, Uruguay, France
Group B: Argentina, South Korea, Nigeria, Greece
Group C: England, USA, Algeria, Slovenia
Group D: Germany, Australia, Ghana, Serbia
Group E: Netherlands, Japan, Cameroon, Denmark
Group F: Italy, New Zealand, Paraguay, Slovakia
Group G: Brazil, North Korea, Ivory Coast, Portugal
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