Darren Till failed in his bid to become Britain's second UFC world champion as Tyron Woodley produced a superb submission win in Texas.
The American welterweight champion started quickly, and floored Till with a right hand early in the second.
Woodley swarmed his rival with a ground and pound before locking in a d'arce choke, forcing a tap out with 41 seconds of the second remaining.
"Tyron was the better man. I'm gutted. I'll be back stronger," said Till.
"It just really, really hurts."
'This feels awesome'
After tapping out, Liverpudlian Till instantly got to his feet and shook Woodley's hand in acknowledgement he had been second best in the biggest bout of his career.
The 25-year-old, who walked to the ring to cheers and the tune of Sweet Caroline, held his own in the opening five minutes when Woodley tried but failed to take him to ground.
But the second five-minute period belonged to the 36-year-old from Missouri as he married a sweet right hand with energy on the floor and an artful submission.
"He's a tough kid," said Woodley. "My coach told me I've got to be ready to go all the way in. I was just taking my time - I saw he wasn't going away easy and took my time to get the job done.
"This feels pretty awesome. I don't believe in ring rust, but I've been away for 14 months."
UFC president Dana White had described the occasion as a "tipping point" for Till and insisted he could become one of the organisation's "big stars" if he were to win and join Michael Bisping as Britons to have held a UFC world title.
Till's journey to the top had involved 17 wins and a draw, all of which followed a move to Brazil in 2012 as he sought a fresh start after being stabbed twice in the back in his home city.
But a first defeat follows a points win over Stephen Thompson at Liverpool's Echo Arena where the majority of ringside media had Till beaten on the cards.
That display, added to this disappointment, may prompt questions about whether he should step up from welterweight to prevent the need to cut a 6ft frame down to 170lbs.
Meanwhile, Woodley quashed views he may be past his peak. He reduced Till to landing just one strike in over nine minutes and has now defended the title he claimed in 2016 four times, this one his first stoppage win as a champion.
Analysis - 'Till will be better for this'
Former UFC world title challenger Dan Hardy on BBC Radio 5 live sports extra:
This will be great motivation for Till to go back and work on things. It took someone as dangerous as Till to draw that kind of performance from Woodley. We will see more of Till in the future, but for now the king of the welterweight division is Tyron Woodley.
My question is: does Till move up to middleweight so he doesn't have to force himself down in weight so much? We've seen fighters do that and look even better.
I will go as far as to say Till will look better at middleweight. But this is all about Woodley tonight.
Till says he wants to be one of the greatest of all time - and sometimes you need a loss like this.
Magomedsharipov wins again
Elsewhere on the American Airlines Center card, Englishman Craig White spent the majority of his welterweight bout defending on his back as American Diego Sanchez took a unanimous decision.
But London fighter Darren Stewart found success with a superb elbow to the head which ended his middleweight contest with Charles Byrd of the United States in round two.
Russian featherweight Zabit Magomedsharipov produced an eye-catching knee-bar from behind to force American Brandon Davis into a submission and land a 12th straight win.
And Brazilian Jessica Andrade produced a devastating right hand to secure a first-round knockout in her strawweight contest with Karolina Kowalkiewicz of Poland.