Phonak rider Landis clocked a winning time of 39:58.09 in light rain over the gently rolling streets around Rome, Georgia, 19 seconds clear of fellow American David Zabriskie.
Armstrong came home one minute and 46 seconds behind Landis.
"I'm disappointed," Armstrong told Velonews. "I didn't feel great but I thought I'd do a better ride.
"I'm disappointed and it shows I have some work to do.
"Sometimes it's nice to get a benchmark, whether it's a good one or a bad one.
"Clearly I didn't set a very good one today."
Armstrong has left himself plenty to do over the final three stages of the Georgia Tour if he is to defend his crown.
The bigger concern, however, is what the 33-year-old Texan and his Discovery team need to do between now and July to put Armstrong into position to win a seventh Tour de France.
"I'm probably behind on fitness," admitted Armstrong. "Last year I definitely got a jump on fitness, and this year I was way behind.
"I thought I caught up but like I said, now I know I haven't and it's time to reevaluate the season.
"We've got about two and a half months.
"We just have to improve from here. It means getting fit and losing weight, focusing on every little aspect of the sport: the diet, the bike, the training, and the team.
"I think they are even a little bit behind, so we've got work to do."
Landis, a former-team mate of Armstrong's on the U.S. Postal team, has the yellow jersey and leads the overall classification 19 seconds in front of Zabriskie and 1:42 over Armstrong.
The Discovery team will attempt to take charge on Friday as the Tour de Georgia enters the mountains for the 214.7km fourth stage from Dalton to Dahlonega that includes five rated climbs.
"We're definitely not going to sit back and watch," said Discovery team director Johan Bruyneel. "Tomorrow and the day after are two hard stages and I think we can still try to do something. We're going to be aggressive."
