The Spanish fifth seed went down 6-3 6-7 (6-8) 6-4 in first round of the Aegon Championships.
Nadal, had arrived at queens following the title victory at the Stuttgart grass-court occasion on Sunday.
“I was fighting in every point,” Nadal said. “I was with the right concentration, with the right motivation, not giving up when I had tough moments.
“I’m not happy I lost a match that I had a chance to win, but that’s it. That’s tennis on grass.”
England’s Andy Murray beat Taiwanese qualifier Yen-Hsun Lu in his opening match of Aegon Championships. He was playing his competitive match of the season on grass, got through 6-4, 7-5 at The Queen’s Club. Now he will face Fernando Verdasco of Spain in round two.
“I always enjoy coming back here” said Murray after his match. “It was not an easy match. He’s a good player, obviously. You know, he takes the ball on and the ball shoots through the court pretty flat. He likes a quicker court. It was a tricky match but it was okay.”
French Open champion Stan Wawrinka and title holder Grigor Dimitrov both won their opening session of the competition.
Wawrinka started his grass-court season with a 6-3 6-4 win over Australia’s Nick Kyrgios, and Dimitrov finished a 4 6-3 6-4 triumph over Sam Querrey.
US Open champion and fourth seed Marin Cilic beat Frenchman Adrian Mannarino 7-6 (7/3), 3-6, 6-2.