The Serbian, playing his third match back following an elbow injury, went down to David Goffin, who prevailed 6-2 3-6 7-5 in the quarter-finals on Friday.
Defeat for Djokovic means all three of the world's top-ranked players are out of the competition after surprise losses for Britain's Murray and Switzerland's Stan Wawrinka on Thursday.
Belgian Goffin, who will meet Rafael Nadal in the last four, had not previously beaten a top-three player.
That record looked likely to continue when Djokovic establish a 4-2 advantage in the deciding set.
But the 12-time Grand Slam champion, who was aiming for a third title on the clay in Monte Carlo, then dropped five of the next six games as world number 13 Goffin eventually sealed his place in the last four by taking his fifth match point.
Djokovic felt he should have made more of his opportunities during the match.
"I started slowly probably because I played two long matches (in the previous rounds)," he told atpworldtour.com.
"But I thought as the match progressed I was feeling okay. You know, I was physically fine.
"We had a lot of exchanges, a lot of rallies. David is playing very quick. He's a fast player. I thought I played very, very well for a set and a half, from the start of the second set.
"I had my chances, I definitely did. I just didn't use them."
Former world number one Nadal made fairly light work of his quarter-final, beating Diego Schwartzman in straight sets.
The Spaniard needed an hour and 40 minutes to complete a 6-4 6-4 victory against the Argentinian world number 41.
Nadal's compatriot Albert Ramos Vinolas will meet Frenchman Lucas Pouille in the other semi-final after their respective victories over Marin Cilic and Pablo Cuevas.
Ramos Vinolas, who yesterday knocked out world number one Murray, upset another higher ranked player as he battled to a 6-2 6-7 (5/7) 6-2 success in just over two-and-a-half hours.
Pouille also needed three sets to progress, eventually overcoming Uruguayan Cuevas 6-0 3-6 7-5.
Additional reporting by the Press Association.