Ivanovic won her first Grand Slam and world number one earlier in the year
Ana Ivanovic was the latest big-name casualty at the Kremlin Cup, losing 3-6 6-2 7-6 to Dominika Cibulkova.
The world number five had two match points in the deciding set but unseeded Slovak Cibulkova fought back superbly.
Defending champion and Olympic gold medallist Elena Dementieva moved into the quarter-finals with a 6-3 4-6 7-6 (7-2) victory over Katarina Srebotnik.
In the first-round, teenager Caroline Wozniacki hit back to beat eighth-seed Anna Chakvetadze 2-6 6-1 6-4.
The exit of fourth seed Ivanovic follows Tuesday's first-round shock when Wimbledon champion and sixth seed Venus Williams was ousted by Italian Flavia Pennetta.
"I created my chances, I served well and I had match points," said Ivanovic. "Obviously I'm disappointed."
Dementieva broke serve twice to take the first set, but lost the second to force a decider.
However, the third seed won the last five points, closing with two aces, for her seventh win in their nine meetings.
Wozniacki won eight straight games against Chakvetadze, ranked 12th in the world.
The 18-year-old Dane, bidding for her fourth title of the season, then broke the Russian at love in the ninth game for a decisive lead.
It's traditionally inconvenient for me to play against Katarina
"It was a tough match. I fought for every point," enthused Wozniacki, who added: "And I came back."
In the second round, Wozniacki will face Nadia Petrova, who ousted Russian Anna Lapushchenkova 6-2 6-1.
The winner of that match will then play Dementieva in the last eight.
Dementieva admitted that it took her a while to find her touch on the indoor courts in Moscow.
"It wasn't easy to win - it's traditionally inconvenient for me to play against Katarina. I've played her several times this season and every time I have had problems with her game," she said.
"I was prepared this time and it paid off."
In the men's event, third seed Mikhail Youzhny was a first-round casualty, losing 7-5 4-6 7-6 to fellow Russian Teimuraz Gabashvili.
World number 22 Youzhny lost his composure in the deciding tie-break as Gabashvili, ranked 66, captured the last seven points in the match.