The Serb was beaten in five sets by wild card Denis Istomin on a day of drama in Melbourne.
Ladbrokes immediately installed Murray as 10/11 favourite to lift the trophy.
The World No 1 has never won the Australian Open but has lost in the final five times, Djokovic beating him on four occasions.
Murray and Djokovic had shared 6/4 favouritism ahead of the tournament but the Scot, who plays Sam Querrey in the third round in the early hours of Friday morning, is now out on his own.
David Macdonald of Ladbrokes said: “Murray’s path to a first Australian Open title has just become a whole lot easier following the surprise departure of Novak Djokovic.”
Milos Raonic’s odds have also come in to 6s from 16s, with 2014 champion Stan Wawrinka in from 11s to 8s.
Ladbrokes latest betting for Australian Open
Andy Murray - 10/11
Milos Raonic - 6/1
Stan Wawrinka - 8/1
Rafael Nadal - 10/1
Roger Federer - 16/1
Grigor Dimitrov - 16/1
Kei Nishikori - 25/1