The world No. 1 lost 1-6 6-3 6-1 to the German in the semifinals of the Summer Games.
He was bidding to become the first men’s player to win a ‘Golden Slam’ — consisting of four grand slams and an Olympic gold medal in the same calendar year.
Steffi Graf is the only tennis player to complete the feat when she did it in 1988.
The Serbian has already won the Australian Open, French Open and Wimbledon this year. He would have needed the gold medal at the Olympics and the US Open title to complete the set.
Victory at the last grand slam of the year would still take the 34-year-old to 21 major titles, surpassing Roger Federer and Rafael Nadal who each have 20 majors to their name.
After the match, Zverev explained what he and Djokovic said as the pair embraced at the net.
“I told him that he’s the greatest of all time, and he will be,” Zverev told reporters.
“I know that he was chasing history, is chasing the ‘Golden Slam’ and was chasing the Olympics, but in these kind of moments me and Novak are very close.
“Of course I’m happy that I’ve won, but at the end of the day I know how Novak feels.”
Djokovic had not lost a set at the Games before Friday’s match, and had looked ominous as he brushed aside his opponents.
And the same tale seemed to be playing out against Zverev, as the 2020 US Open finalist failed to keep up with Djokovic’s intensity early on.
However, after the interlude between the first two sets, he seemed to gather himself and fought back, showing grit and determination.
His big, powerful serve and devastating forehand had him on the front foot, while Djokovic showed signs of nerves as uncharacteristic unforced errors creeped into his performance.
A bathroom break between the second and third set seemed to halt Zverev’s momentum, but it wasn’t for long.
In the shortened three-set format for the men’s competition at the Olympics, Djokovic wasn’t able to produce a comeback as Zverev stayed on course for his first Olympic gold medal, winning the final two sets in an hour and 26 minutes.
Zverev, 24, will now meet the Russian Olympic Committee’s Karen Khachanov in the gold medal match this weekend.
“It’s an amazing feeling knowing that you’re going to bring the medal back to your house, back home to Germany,” Zverev said. “It’s incredible beating the best player in the world undoubtedly right now and in this season.
“It seemed it was impossible to beat him at this event, so I’m very happy right now. But yet there’s still one match to go.”
Meanwhile, Djokovic and Spain’s Pablo Carreño Busta will battle it out for the bronze medal.
When asked to describe how he was feeling ahead of the bronze medal clash on Sunday, Djokovic said he feels “terrible.”
“I hope to feel better tomorrow.”
For the 20-time grand slam champion, the day only got worse after that.
Just a few hours after his defeat to Zverev, Djokovic and his Serbian teammate Nina Stojanovic lost in the mixed doubles semifinals against Aslan Karatsev and Elena Vesnina of the Russian Olympic Committee.
Karatsev and Vesnina won 7-6 (7-4) 7-5 in an hour and 44 minutes to advance to the final where they will face their compatriots Andrey Rublev and Anastasia Pavlyuchenkova after they beat John Peers and Ashleigh Barty of Australia earlier in the day.
After his mixed doubles defeat, Djokovic described his day as “tough.”
“A really tough day. I feel so terrible right now,” he told the media.
“I was leading a set then a break, and he managed to turn the match around, he served huge, was attacking, and I was not getting any free points on my first serves,” he added. “And I missed a lot of first serves from 3-2 in the second.
“To play someone of his quality, of his level, it’s just too tough to win a match.”