The 29-year-old Spaniard, who was Wimbledon champion in 2008 and 2010 and runner-up in 2006, 2007 and 2011, was humbled 7-5, 3-6, 6-4, 6-4 by dreadlocked German Dustin Brown, the world number 102, in the second round.
Brown, who once was so short of cash that he travelled to tournaments in a camper van, hit 13 aces and 58 winners on the back of a free-hitting, serve-and-volley barrage.
It was 29-year-old Nadal's first ever defeat to a qualifier at a Grand Slam and came in the aftermath of losing his French Open crown where he had been champion nine times.
But the 14-time Grand Slam winner and former world number one vowed to fight on in an effort to restore his reputation as the sport's most feared competitor.
"So I lost. Sad today for that, obviously," said Nadal, who came into the tournament ranked at 10, his lowest in a decade.
"But that's sport. Good moments, bad moments. Obviously today is a bad moment for me. I just need to accept these kind of things can happen. I did that all my career.
This year, Nadal has looked a shadow of the player he once was.
He missed the defence of his US Open title in 2014 due to a wrist injury and then underwent an appendectomy, shutting down most of the second half of the year.
He lost at the French Open for only the second time in his career last month, knocked out in the quarter-finals by Novak Djokovic after arriving in Paris having failed for the first time to have won a European clay-court title.
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