World No 1 Andy Murray (left) blew a 4-0 third set lead to lose to 15th-seeded Albert Ramos-Vinolas of Spain.
The world number one beat Gilles Muller 7-5, 7-5 in the second round of the Monte Carlo Masters.
Seeded first and fourth respectively, Murray and Nadal enjoyed first-round byes in Monte Carlo, entering the draw in round two on Wednesday. "It's a completely different match-up and I'll need to be ready for a big fight because he doesn't give anything for free". "I'm confident that with dedication and commitment and a positive mindset, I can get to the level where I want to be".
"After I was 6-3, 2-1 up, I felt like I had the control of the match, but since then I started to make some unforced errors", Djokovic said after the match. After breaking Murray's serve again, Ramos-Vinolas served out the match on his second serve.
Three-time Grand Slam victor Wawrinka never found his touch or range and conceded match point when his backhand pass - normally one of the best shots in men's tennis - clipped the net and went out.
"I only started serving properly four, five days ago, so I knew it was going to take time but I didn't expect to start the match serving like that".
Elsewhere, defending champion and fourteen-time Grand Slam champion Rafael Nadal struggled past Britain's Kyle Edmund 6-0, 5-7, 6-3 in their thrilling second round of the tournament.
Swiss third seed Stan Wawrinka, the 2015 French Open champion, was also sent packing when he lost to Uruguay's Pablo Cuevas 6-4 6-4 but nine-times champion Rafael Nadal crushed birthday boy Alexander Zverev for the loss of only two games.
Djokovic joined Rafael Nadal in the last eight in Monte Carlo after the 30-year-old nine-time French Open victor demolished highly-rated German Alexander Zverev 6-1 6-1. But I was happy with how I hit the ball.
Ramos-Vinolas, of Spain, celebrated his first win over a world No. 1 in four chances.
The 39-year-old German defeated a listless Benoit Paire in straight sets 6-2, 6-3, and will next face ninth seeded Tomas Berdych in the second round.
During the early moments of the match, it was Almagro who had taken the lead and had even served for the opening set at 5-3. Federer is playing very little - if at all - on clay before he begins his bid for another Wimbledon title on his favored grass surface this summer.
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He said: "There's so much excitement around the World Championship , it's a buzz but it can drain you being a part of it". Wilson was clearly disappointed at the defeat, but was pleased to have put on a good showing on his Crucible debut.