The shock defeat ends the world number one's hopes of a calendar-year Grand Slam.
Defending champion Novak Djokovic was beaten 7-6(6) 6-1 3-6 7-6(5) by American Sam Querrey in the Wimbledon third round on Saturday.
The Serbian top seed trailed by two sets overnight after the Court One match was interrupted by rain on Friday and there was no escape for the 29-year-old as Querrey, the 28th seed, completed a huge shock.
Defeat, which ended the world number one's 30-match winning streak at grand slams, scuppered Djokovic's hopes of becoming the first man to win all four majors in a year since Rod Laver in 1969.
It was his first loss before the quarter-final of a grand slam tournament since 2009 when he also bowed out in the third round at the French Open.
Murray favourite to win title
Andy Murray recorded a solid and largely straightforward 6-3 7-5 6-2 victory over Australian John Millman to reach the second week of Wimbledon, where he will find himself in the unusual position of being the highest seed left in the draw.
One of the partisan crowd's biggest cheers during his third-round win over the 67th-ranked Millman greeted the news that Djokavic had been beaten by Querrey on Court One.
Murray lost to Djokovic in both the Australian and French Open finals this year and his composure faltered immediately after the news filtered through during the second set by dropping his serve.
The British 2013 Wimbledon champion got quickly back into his stride, however, and after he broke serve in a lengthy 11th game, he ran away with the match.
Murray played down the significance of Djokovic's loss.
"I need to reach the final for that result to have any bearing whatsoever on my performance," he said.
"I have very tough guys left in my half of the draw."
Nishikori eases past Kuznetsov
Japan's Kei Nishikori brushed past Andrey Kuznetsov 7-5 6-3 7-5 to set up a fourth-round showdown with Marin Cilic.
The fifth seed won 7-5 6-3 7-5 to the delight of a patient contingent of Japanese fans who had sat wrapped up against the drizzle on Court Three through a lengthy break between the second and third sets.
Nishikori, 26, beat Kuznetsov in straight sets in the second round at the French Open and once again the swashbuckling Russian, 25, failed to find a way to counter the Japanese player's baseline aggression and solid defence.
Cilic overpowers Lacko
Cilic made short work of Slovak qualifier Lukas Lacko finishing their rain delayed third round match 6-3 6-3 6-4 with nine aces in the final set.
The 2014 U.S. Open champion had already wrapped up two sets when rain set in on Friday and he was clearly in no mood to mess about on a blustery Court 12.
The 6-foot-6 (1.98-metre) ninth seed pummelled Lacko from both sides of the court, winning 98 percent of points on his first serve.
He clinched with his 19th ace, wrapping up the match in and hour and 49 minutes.
