Williams, who was chasing a record-equalling 24th Grand Slam, will now have to wait for the next Grand Slam to make another attempt.
The American, who recently won her first title in three years saw her increase in confidence but she made a stunning number of unforced errors that saw her lose the match to 28-year-old Wang Qiang.
The Chinese national beat Williams 6-4 6-7 7-5 and will now play Tunisian national Ons Jabeur in her first Australian Open semi-final.
“I made far too many errors to be a professional athlete today,” Williams told reporters after the match.
