Looking to follow up her French Open title with a second Wimbledon crown, the Russian produced a performance as grey as the weather in a 6-4 6-3 defeat on Court One.
Four-times champion Serena Williams scrambled through to the quarter-finals at the grasscourt slam for the 10th time in her career although she was given a fright by powerful Kazakh Yaroslava Shvedova in a 6-1 2-6 7-5 win on a blustery Court Two.
Williams will now face defending champion from the Czech Republic Petra Kvitova after she hit back from a poor start to beat Italy's Francesca Schiavone 4-6 7-5 6-1.
Roger Federer was also off colour against Xavier Malisse and appeared on the verge of retiring with a sore back in the first set before claiming a 7-6 6-1 4-6 6-3 victory to stay on track for a record-equalling seventh title.
The Swiss needed a lengthy injury time-out in the first set when he was barely moving, but returned to win the opening set tiebreak and after a rain delay, and further treatment at the end of the third set, he found some fluency to reach the quarter-finals despite looking far from his best.
Second Monday at Wimbledon is a unique day among the grand slams with all eight men's and women's last 16 matches taking place, a day when the top seeds begin to move through the gears.
Sharapova just seemed to be stuck in neutral though.
After falling behind and being forced off court by the rain, she failed to find any spark. Despite battling until the end, a Lisicki second serve ace sealed victory for the German and revenge for losing to Sharapova in last year's semi-finals.
"She did many things much better than me today," Sharapova, who could lose her world number one ranking here, told reporters. "After the rain delay she came out firing.
"As tough as it is to sit here after a loss, I take away the positives from the last two months."
Lisicki was almost overwhelmed with emotion after sealing her first career victory over Sharapova.
"It is just unbelievable for me, I'm just so happy," Lisicki said after falling to her knees in celebration.
She will face fellow German Angelique Kerber in the quarter-finals after the women's tour's most improved player thrashed four-times grand slam champion Kim Clijsters 6-1 6-1.
The Belgian, who has announced she will retire after the U.S. Open, will get one last chance to grace Wimbledon when she returns for the Olympics later this month.
Wildcard Shvedova wrote her name into the Wimbledon record books on Saturday when she won all 24 points in a "golden set" against Sara Errani but she got some of her own medicine as Williams romped through the opener of their fourth round match.
Shvedova, distinctive in her wrap-round sunglasses, recovered superbly, however, and after taking the second set in style she pushed Williams all the way in the third set before the sixth seed showed her quality.
She went toe-to-toe with Williams in the third set as drizzle fell but Williams finally showed her quality, setting up match point with an incredible topspin lob from deep in the corner before pummelling away a forehand to claim the win.
"I didn't want to lose today," Williams said.
"I felt fine out there. I'm not tired. I'm not anything. I feel I can play so much better than I have been. If I couldn't, it would be a problem. Today, I didn't serve as well as I could. But you know me, I'm never satisfied."
The sight of Federer needing treatment is a rarity as the Swiss's body has seemed to defy medical belief over a largely injury-free career.
That is why it was such a shock to see him in obvious discomfort against Malisse on Centre Court.
During the first set he could do no more than push his serve into court while his forehand was half paced.
His future in the tournament looked as bleak as the looming clouds when he went off for treatment at 4-3 and then slipped a break down on his return.
He dug deep to break back when Malisse served for the opener and then rattled through the tiebreak.
After another rain delay, when the roof was surprisingly left open, the third seed returned to move two sets ahead and although Malisse won the third and was a break up in the fourth, Federer survived to fight another day.
"I felt my back going at the beginning of first set and played for three or four games," Federer told reporters.
"Maybe it was the two days off and the cold wind today but I managed to pull through in the end."
Andy Murray continues his quest to give Britain its first male grand slam champion since 1936 when he takes on big-serving Croat Marin Cilic on Court One.
