Djokovic, who started the week with a chance of replacing Roger Federer at No. 2 in the world rankings, lost 6-4, 6-4 to the 20-year-old Latvian who finished last year at No. 53.
Djokovic beat Federer in the Australian Open semifinals last year as he reached the final without dropping a set, then claimed his first Grand Slam title in four sets over Frenchman Jo-Wilfried Tsonga.
The 21-year-old Serb was a hot favorite to improve to 3-0 against Gulbis, both previous wins coming in quarterfinals last season at the French Open and at Cincinnati.
But he struggled with his serve and was broken in the fifth game.
Both players dropped serve twice to open the second set before Djokovic finally held, raising both arms in the air in mock triumph when he earned a game point with an ace.
But he was in trouble again in the ninth, facing two break points at 15-40 and dropping serve when he lost a scrambling rally.
Gulbis closed out at love, sealing the win in 1 hour, 28 minutes with an ace, his fourth of the match.
The loss was a big blow for Djokovic, who could have moved to a career-high No. 2 ranking if he'd been successful in Brisbane and Federer flopped at Doha.
Second-seeded Tsonga was playing Argentina's Agustin Calleri in the night match later Tuesday.
Fifth-seeded Tomas Berdych of Czech Republic beat Australian Brydan Klein 6-0, 6-4 and Florent Serra of France ousted former No. 1 Juan Carlos Ferrero of Spain 6-3, 7-6 (3) in earlier matches.
On the women's side, second-seeded Victoria Azarenka missed two match point chances before sealing a 7-6 (4), 7-5 win over Jarmila Gajdosova of Slovakia and No. 3 Marion Bartoli of France beat Hungary's Melinda Czink 5-7, 6-3, 6-1.
Azarenka, runner-up at the Gold Coast tournament last year which was a forerunner to the joint ATP-WTA Brisbane International, thought she'd won on her first match point but was on the receiving end of an erroneous out call on her deep forehand.
She broke Gajdosova at love in the next game to avoid another tiebreaker and reach a quarterfinal match against either Australia's Samantha Stosur or Lucie Safarova of Czech Republic.
Tathiana Garbin of Italy rallied for a 4-6, 6-4, 6-2 win over Russia's Alisa Kleybanova.
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