Andy Murray is out of the Australian Open
In a bad day for the Brit, Murray first fell to German Zverev before Jo-Wilfried Tsonga ended the fairytale run of Dan Evans.
Zverev, in the fourth round at a grand slam for the first time after a career ravaged by injury, flummoxed his contemporary with his unorthodox serve-volley game and broke the Wimbledon and Olympic champion eight times over the contest.
The world number 50 served like a demon and was helped by a below-par performance from the Briton but thoroughly deserved his 7-5 5-7 6-2 6-4 victory over three and a half hours on Rod Laver Arena.
"Did I miss an opportunity?" Murray said. "I don't know. I mean, every year you come is a different chance.
"But you've got Roger (Federer) plus three guys that are pretty much in the top 10 in the world in my half of the draw. There's certainly no guarantees, even if I got through today's match, that I would have gone further.
"It's disappointing to lose (but) I don't feel like this is any more of an opportunity than other years."
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When reigning champion Novak Djokovic departed in the second round at the hands of world number 117 Denis Istomin, Andy Murray must have thought he would never get a better chance to win the year's first grand slam.
"He deserved to win because he played great when he was down, and also in the important moments," said the 29-year-old, who had lost five finals at Melbourne Park, four of them to the Serbian.
"I was kind of behind in the last couple of sets the whole way (but) I have had tough losses in the past and I have come back from them."
Murray prides himself on the variety off weapons at his disposal but some, like his lob, deserted him on Sunday, while others were undermined by the lack of pace Zverev offered him to work with.
Murray came back in the second set but lost in four sets to Zverev
Zverev will now face either Roger Federer or Kei Nishikori
Zverev was inspired and came up with some brilliant shots as he charged to the net 118 times, breaking the world number one five times in the first two sets alone.
The 29-year-old served up his first ace to take the first set and Murray was forced to up his level of aggression to bring the match back to parity with a backhand winner down-the-line on his fifth set point in the second.
If the Scot thought he was on his way out of the woods he was wrong, however, and Zverev broke him for a sixth time to take a 3-2 lead in the third, and again for 5-2 before serving out the set when Murray dumped a backhand into the net.
An eighth break early in the fourth set triggered serious alarm bells among the large British contingent on Rod Laver Arena but Murray was unable to find his way out of his funk.
There were some nerves as Zverev served for the match, he netted one straightforward overhead, but he recovered his composure to go through to the quarter-finals when Murray sent a forehand long.
Dan Evans lost in four sets to Jo-Wilfried Tsonga
As for Evans, it was veteran Frenchman Tsonga, who enjoyed his own storybook run to the final in 2008, that took time to find his groove but finished full of running to down the 26-year-old Brit 6-7(4) 6-2 6-4 6-4 in two hours and 53 minutes as twilight fell at the Hisense Arena.
Tsonga will play fourth seed Stan Wawrinka for a place in the semi-finals.
"He played good at the start, he had nothing to lose so it was difficult for me," Tsonga said on court afterwards.
"He was taking the ball really early but after that I went over him and I finished strong. I'm really happy to go through."
The result means Johanna Konta remains the only British representative in the singles.