Serena Williams beaten by brilliant Sabine Lisicki at Wimbledon 2013

Sabine Lisicki and Serena Williams after their fourth round match at Wimbledon. Photograph: Toby Melville/Reuters

There are shocks and then there are shocks. What happened to Roger Federer and Rafael Nadal in the first week here was pretty spectacular; what happened on Monday to Serena Williams was nothing short of unbelievable. Five times the champion and on a winning streak of 34 matches, the American was an overwhelming favourite to win the title for a sixth time, even more so after the early exits of Maria Sharapova and Victoria Azarenka. But having led 3-0 and 4-2 in the final set, she slipped out of the Championships, beaten 6-2, 1-6, 6-4 by Germany's Sabine Lisicki.

It was a brilliant performance from Lisicki, a semi-finalist here in 2010, at her best on grass and a player who on her day can be a match for anyone. She did a great job of keeping Williams off-balance and wrong-footing the American. But what was most unusual was the way the world No1 let slip a commanding lead in the decider and for once, when the big moments came, tightened up and was found wanting.

At 31 the American has been through enough ups and downs in her career to put things in perspective, including a near-death experience in 2011, after she suffered a pulmonary embolism because of blood clots in both lungs. Having won 75 of her 78 matches since losing in round one at the French Open last year and less than a month since winning the Roland Garros title for a second time, she said she "couldn't be more disappointed". But even as she praised Lisicki for her effort, she looked and sounded as if she was in a state of shock.

"She plays really good on grass," she said of Lisicki, the 23rd seed whose booming serve and big groundstrokes have now taken her to the quarter-finals for the fourth time. "She has a massive, massive serve. Going in there, you have to know that it's definitely not going to be an easy match at Wimbledon. I just need to do better.

"I definitely had my opportunities and I didn't take them. I definitely feel that I backed off a little bit at some points. I definitely feel I could have gone for it a little more on some of the shots. Sabine played really well. But there's huge room for improvement for me."

That was the biggest surprise; that she did not do better when she needed to. So many times in her career Williams has dug her way out of trouble when not on her A-game. It looked as if she had done it again when, having been sluggish, below par and berating herself throughout a tetchy first set, she won nine straight games to level the match and go 3-0 up in the third.

But Lisicki was not done. The German had beaten the reigning French Open champion in three of the previous four years and from somewhere she found a way back in, breaking back for 2-3 and, after dropping her next service game, again for 3-4. At 0-40 she was staring into the abyss but after a mistake from the American she hit two winners to get back to deuce. She then saved a fourth break point with an ace and held for 4-4, to huge cheers from the Centre Court crowd.

Her tail up, Lisicki then hung in on the Williams serve and, when the American sent a simple smash long, the German had the break. Still it seemed as if normality would somehow by restored by Williams, especially when Lisicki missed a forehand on match point and then double-faulted to give her opponent a break point back. But Lisicki saved it with an ace and then, after forcing a second match point, put a forehand away into the corner for the win of her life.

"I am still shaking, I am so happy," Lisicki said, bursting into tears moments after a victory which sets up a quarter-final against Kaia Kanepi of Estonia. "It is an amazing feeling to win this match. This is such a special place for me and the crowd were brilliant to me. I gave it everything I had, I fought for every single point to try to win it somehow."

The defeat blows a hole in the top half of the draw, as those of Sharapova and Azarenka did in the bottom half. Williams said she would just go back home and start preparing to bounce back when the tour moves to the hard courts in North America later this month.

"For me any loss is difficult to overcome," she said.

"I'll just have to go back to the drawing board and figure out how to win this match the next time."

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