After labouring to an opening 72 on a day when 105 of the 156-strong field broke par, defending champion McIlroy could only add a second round of 73 at Portstewart Golf Club to finish one over par.
The world No 4’s frustrations boiled over when he slammed his driver onto a tee marker following a poor drive on the seventh, his 16th hole of the day, but it was a clumsy double-bogey six on the next which sealed his fate.
Playing partner Jon Rahm showed McIlroy how it should be done in just his second regular European Tour event, the world No 11 carding a 67 to finish 12 under par, a shot behind halfway leaders Daniel Im and Benjamin Hebert.
“I felt like I was battling well, two under through 13 and with another par five coming up,” said McIlroy, who had started from the 10th and covered the back nine in 35 before picking up a shot on the fourth.
“To bogey the par-three sixth took the wind out of my sails and to not birdie the seventh was the final nail in the coffin. I was a bit deflated.
“It’s disappointing because I felt like I was playing well coming into the week and I need to do some practice over the weekend and get ready for next week’s Scottish Open.
“My short game is not sharp enough and I’m making silly mistakes.”
McIlroy was playing just his ninth tournament of an injury-plagued season and admitted that being the event host did not allow him to prepare as he usually would.
But the 28-year-old added: “I don’t want to make it an excuse because I played a lot of golf last week, I played well in the pro-am and I just did not get it together.”
Since turning professional less than a year ago, Rahm, 22, has claimed his first PGA Tour title and racked up a string of impressive performances, including finishing third and second in his first two World Golf Championship events.
He now has the chance to follow fellow Spaniards Seve Ballesteros, Jose Maria Olazabal and Sergio Garcia in winning the Irish Open.
England’s Matthew Southgate and Oliver Fisher were a shot behind Rahm on 11 under alongside New Zealand’s Ryan Fox, the son of former All Blacks fly-half Grant.
Scotland’s David Drysdale is four off the lead after adding a 69 to his opening 66 for a nine-under total. It was an eventful round for Drysdale who had an eagle, four birdies and three bogeys. Stephen Gallacher also shot 69 and is a stroke further back. The other Scots to make the cut were Richie Ramsay (70 and six under), Scott Jamieson (69 and five under) and Duncan Stewart (72 and five under).