Nadal was sent packing by Ukraine's Alexandr Dolgopolov 6-3 3-6 7-6 (7-5) after Sharapova fell to Italian qualifier Camila Giorgi 6-3 4-6 7-5 as last year's men's and women's singles champions both crashed out. (Agencies)
Nadal blew a 4-2 lead in the deciding tiebreak after the Spaniard had fought his way back from 5-2 down in the deciding third set.
"I wanted to play very well here. I had good success in this tournament in the past, a tournament I always feel good about," said Nadal, who will now turn his attention to the Sony Open in south Florida.
"I'm going to keep working hard to try to be ready to play better in Miami," he said.
Nadal beat Dolgopolov in the final of the inaugural Rio Open last month but the Ukrainian got his revenge on the world number one in the Californian desert.
"I feel great, as after every win, of course. I beat the defending champion and the number one in the world," said Dolgopolov, whose next opponent is Fabio Fognini after the Italian saved two match points in a 6-2 3-6 7-5 win over Frenchman Gael Monfils.
Giorgi, a 22-year-old ranked 79th in the world, made the fourth round of the U.S. Open last year as a qualifier, but her win over the world number five Russian was the biggest of her career.
"I did not play a good match at all," said Sharapova, who dropped serve eight times and committed 58 unforced errors.
"(I've) never played against her, but she's someone that doesn't give you much rhythm. She's quite aggressive, but some shots she hits incredible for a long period of time,” she said.
"Sometimes they go off a bit. But, if I'm speaking about my level, it was nowhere near where it should have been," she added.
Nadal was sent packing by Ukraine's Alexandr Dolgopolov 6-3 3-6 7-6 (7-5) after Sharapova fell to Italian qualifier Camila Giorgi 6-3 4-6 7-5 as last year's men's and women's singles champions both crashed out.