Murray had won his last 12 matches against the Frenchman but looked off-colour on Friday the 13th as his opponent came through to win 6-4, 6-2.
Simon will now face Tomas Berdych in the semi-finals.
The match started in the worst possible way for Murray as Simon broke his very first service game then moved into a 2-0 lead to pile the early pressure on the Scot.
Murray held his next serve but Simon took his own service game then broke the top seed again to ease 4-1 ahead.
The Frenchman then powered 5-1 in front on his own serve leaving Murray with a mountain to climb in the first set.
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Murray, the No 1 seed did not falter with the ball in hand on his next serve to pull back to 5-2 then broke Simon to cut the gap to two games.
Murray held again thanks to a Simon error to trail 5-4 then pushed his opponent all the way as he served for the set, but the Frenchman came through to take it 6-4.
Simon started the second set in exactly the same way as the first – with a break of the Murray serve – before following it up with a hold and another break to move 3-0 clear.
Another hold meant Simon had total control of the set but Murray finally got a foothold at 4-1 after clinging on to his service game.
A double fault by Simon in the next handed Murray two break points, and the beaten Australian Open finalist took the first opportunity to cut the gap to 4-2.
However, Simon broke right back after Murray floated a chip into the net, giving the Frenchman the chance to serve for the match.
The world No 19 did just that, with an out-of-sorts Murray flashing a forehand wide to gift Simon two match points.
Murray pulled it back to deuce but Simon came through to take the second set 6-2 and wrap up a crushing defeat.
That meant no rematch of the Australian Open semi-final in which Murray defeated Berdych last month.
Earlier, the Czech had booked his place in the last four thanks to a 6-1, 6-4 victory over Gael Monfils, despite suffering a heavy fall during the match.
He recovered to romp to a 6-1, 6-4 victory over Simon’s fellow Frenchman with a flurry of baseline winners.
The third seed also served extremely well, winning 88 per cent of the points on his first serve.
Berdych needed just 23 minutes to seal the first set, and broke for 2-1 in the second soon after calling the trainer to have his left wrist checked following his tumble when chasing a drop shot.
“It was a nasty fall,” Berdych said. “I’ll have to see how it evolves but, hopefully, I will fully recover for the semi-finals.”
Monfils attended to the hard-hitting Czech after he slipped, stepping across the net to help him back on his feet, and picking up his racket.
“The score may give the impression it was an easy victory, but it was a tough fight,” Berdych said. “I really had to go all out.” Berdych has been in impressive form since the start of the year under new coach Dani Vallverdu, reaching the final in Doha before making the semis in Melbourne.
On the WTA Tour in Thailand, seventh seed Monica Puig eased into the semi-finals of the Pattaya Open with a straight sets win over Misaki Doi. Puig came through 6-4, 6-2 and will now face Ajla Tomljanovic in the last four. Croatia’s Tomljanovic earned her semi-final berth with a 7-6 (7/4) 6-2 win over Evgeniya Rodina. The other semi-final will see Daniela Hantuchova face Marina Erakovic.