McIlroy was on the receiving end of a thrashing in the desert
World number one Lee Westwood, Northern Ireland's Rory McIlroy and US star Phil Mickelson were all victims on a day of surprises at the WGC Match Play.
Westwood lost by one hole to American Nick Watney, while McIlroy suffered a heavy 8&7 defeat by American Ben Crane.
World number four Phil Mickelson lost 6&5 to 22-year-old Rickie Fowler but Graeme McDowell reached the last 16 with a 4&2 win over Ross Fisher.
Luke Donald also progressed but Paul Casey and Justin Rose crashed out.
England's Casey, the runner-up for the last two years in Arizona, went out 4&2 to Australian Jason Day, while Rose took world number two Martin Kaymer to the 20th hole before succumbing.
Donald marched on with a 2&1 win over Ryder Cup team-mate Edoardo Molinari of Italy and will next face another Italian Matteo Manassero after the impressive 17-year-old beat South African Charl Schwartzel one up.
I putted very poorly all day long
US Open champion McDowell's next opponent will be South Korean Yang Yong-Eun, the
2009 US PGA winner,
who put out Ian Poulter's conqueror Stewart Cink 4&3.
Westwood was never ahead and trailed by two holes after 13 before three-putting from close range on the 16th to squander a chance to level the match.
Watney also missed a short putt which would have closed out the win on 17 but the pair halved the 18th to give the American victory over Westwood for the second straight year.
"I putted very poorly all day long," said Westwood, who has not gone beyond the second round in 11 appearances at the event. "The game's in good shape but I have just not worked hard on my putting and it showed."
McIlroy, 21, lost the first and was six down to Crane by the turn, eventually conceding the match before reaching the 11th green.
McIlroy could have ended this week as the world number three ahead of Tiger Woods but instead went down to the joint second heaviest defeat in the 12-year history of the event.
The biggest winning margin was when Woods crushed Canadian Stephen Ames 9&8 five years ago.
Well, that wasn't the plan. I didn't do much to put him under pressure
World number seven McIlroy said on Twitter; "Well, that wasn't the plan. Ben played great. I didn't do much to put him under pressure."
Crane, the world number 38, said: "That was one of the best rounds I've ever played in my life. Rory had a couple of balls in the desert but I played exceptional and the round went all my way."
US Open champion McDowell
lost the first hole against Fisher and was two up after four, but despite levelling the match again at the seventh, the Englishman was unable to get his nose in front.
"It's always funny against a friend," said McDowell, who will move above Woods to world number three.
"It's difficult to get the killer instinct, that edge that you need.
"We threw each other a few holes, but thankfully I was able to hang in there and get the job done. It wasn't pretty, but sometimes you can win ugly."
McDowell said of his last-16 clash with Yang: "YE is a solid player and has got a great short game. He's going to be a tough competitor.
"I haven't been playing my best but I'm still alive and kicking, so anything can happen. Hopefully my confidence will continue to grow."
Fowler fought back from one down after three to one up after five before winning four straight holes from the eighth, culminating in an eagle on the 11th and then another on 13 to seal a famous win over Ryder Cup team-mate Mickelson.
"He doesn't really have a weakness," said Mickelson. "He really is a complete player and he put it together today."
World number six Casey went three down after eight but, despite getting a hole back at the 10th, could not get any closer to his Australian rival.
Second-round results (US unless stated)
Graeme McDowell (NI) bt Ross Fisher (Eng) 4&2
YE Yang (SKor) bt Stewart Cink 4&3
Ben Crane bt Rory McIlroy (NI) 8&7
Rickie Fowler bt Phil Mickelson 6&5
Jason Day (Australia) bt Paul Casey (Eng) 4&2
Luke Donald (Eng) bt Edoardo Molinari (Ita) 2&1
Bubba Watson bt Mark Wilson 6&5
Miguel Angel Jimenez (Spa) bt Ryan Palmer 4&2
JB Holmes bt Ernie Els (SA) one up
Matt Kuchar bt Bo van Pelt 3&2
Matteo Manassero (Ita) bt Charl Schwartzel (SA) one up
Ryan Moore bt KJ Choi (SKor) 5&4
Geoff Ogilvy (Aus) bt Thomas Bjorn (Den) one up
Nick Watney bt Lee Westwood (Eng) one up
Hunter Mahan bt Robert Karlsson (Swe) two up
Martin Kaymer (Ger) bt Justin Rose (Eng) 20th hole
Last 16 matches:
Watney v Moore
Manassero v Donald
Fowler v Kuchar
McDowell v Yang
Crane v Palmer
Ogilvy v Watson
Day v Holmes
Mahan v Kaymer