World number one Roger Federer stepped up his bid for a sixth Indian Wells Masters title with a 6-2, 6-1 demolition of Filip Krajinovic on Monday.
In just his second tournament since Wimbledon past year - his first comeback at the Australian Open in January saw him lose in the fourth round to Hyeon Chung before he chose to go under the knife for a "small medical intervention" - Djokovic looked well below his best as he went down 7-6 (7-3) 4-6 6-1 to a man ranked 109 in the world.
The 30-year-old Serbian, seeded 10th in the tournament, lost to Japanese qualifier Taro Daniel 7-6 (3), 4-6, 6-1 in second-round action.
Djokovic shut down his season after Wimbledon in 2017 and despite not being at his best, chose to play at this year's Australian Open where he was ousted by South Korea's Hyeon Chung in the fourth round.
Meanwhile, top seed Roger Federer wrapped up his rain-delayed match against Argentina's Federico Delbonis, winning 6-3, 7-6 (8-6).
The match was tied 2-2 in the second set when it was halted Saturday.
"Very weird. I mean, I just completely lost rhythm, everything.
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And even though you don't have pain, you are still thinking about it, because it has been something that I have been feeling and dragging for over two years", Djokovic said.
Djokovic had further surgery on a persistent elbow injury in February.
The 12-time grand slam champion has been sidelined since the Australian Open in January due to an elbow injury and he underwent a "small medical intervention" last month.
"For me it felt like first match I ever played on the tour", Djokovic said after his defeat, as quoted by ATP's official website. American Sloane Stephens, the 13th seed in the women's draw, was scheduled to play two-time BNP Paribas Open champion Victoria Azarenka following the Federer-Delbonis match in Stadium 1. The surface doesn't react so much; the ball doesn't travel so fast.
It was the earliest loss for Djokovic at Indian Wells since a first-round exit in 2006. "I know how much work I have put into it, and I know what I had to do to get here".
Israeli Dudi Sela beat British 21st seed Edmund 6-4 6-4, while Luxemburg's 24th seed Giles Muller was upset by Frenchman Pierre-Hugues Herbert 6-3 7-5.