The world No 1 was the defending Aegon champion and was aiming for a record sixth title at Queen’s Club.
But in one of the greatest upsets Queen’s has seen he was blown away 7-6, 6-2 by lucky loser Jordan Thompson who is ranked 90th in the world.
Murray had been due to play Aljaz Bedene but the British No 4 withdrew due to a wrist injury.
Australia’s Thompson, who lost to Frenchman Jeremy Chardy in the second round of qualifying on Sunday, came in to replace him.
Wimbledon starts a week on Monday when Murray will be bidding to defend the title he won last year.
However, he will now go into the Championships having played just one competitive match on grass this season.