The sixth seed got off to the flawless start, winning his opening round-robin match in the Pete Sampras Group as he was able to keep his nerves in check to beat the Austrian 6-3 5-7 7-5.
Nadal pulled out of last week's Paris Masters and was clearly still below 100 per cent in his 7-6 (7-5) 6-7 (4-7) 6-4 loss to Belgian's Davis Cup hero on Monday night.
"I'm not ready to play", Nadal said.
He next plays Nadal's first match conqueror, Belgian David Goffin, on Wednesday before completing the pool stage against Spanish tournament reserve Pablo Carrena Busta on Friday.
Having become the first player from Bulgaria to qualify for the event, Dimitrov quickly settled into his new surroundings. "And especially here, of course, a little bit because of all the atmosphere, arena", Thiem said. "Also because it's your first match, and it's against a really, really good opponent, so you're very tense", Thiem said.
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The tournament debutant, who had displayed a much more rounded game with his frequent visits to the net, got to within two points of victory when serving for the match at 5-4 only for the nerves to kick in again and a missed backhand allowed Thiem a way back into the match.
Dimitrov broke in the seventh game of the decider to take control once more.
Thiem, playing in London for the second consecutive year, saw his record drop to 2-1 against Dimitrov, whom he saved five match points to beat at the Madrid Open earlier this year.
But rather than Dimitrov, Thiem it was who wilted.
"I fought a lot knowing it was my last match of the season". "I was like, 'Not again, definitely not again, '" he added with a smile.