Andy Murray and Heather Watson face an uphill battle to reach the Hopman Cup final after losing to Nick Kyrgios and Daria Gavrilova in the mixed doubles.
The Britons lost 6-2 6-7 (0-7) 11-9 to the Australian Green team in a tense deciding rubber in Perth.
Britain's hopes of reaching the final now depend on a big win against Germany on Friday, coupled with Australia Green losing heavily to France.
Earlier, Murray had lost a singles match to Kyrgios for the first time.
World number two Murray, who had won all four of his previous meetings against the Australian, suffered a 6-4 7-6 (7-5) loss.
But Watson went on to beat Gavrilova 6-7 (2-7) 6-2 7-5 in a thrilling match to set up a deciding mixed doubles rubber, which Britain lost when Kyrgios served out an ace on Australia's fourth match point.
Both teams had won their opening ties in the round-robin event, which is a warm-up for the Australian Open in Melbourne, starting on 18 January.
Kyrgios and Gavrilova make up Australia Green - one of two squads representing the host country in the eight-team event.
Murray fails to take set point
Murray, 28, won his first four encounters against the 20-year-old, including victories at the Australian, French and US Opens last year.
Kyrgios, ranked 30th, broke Murray in the third game of the match and although the Scot saved two set points at 4-5, a backhand winner secured the set for the Australian at the third opportunity.
Murray was broken from 40-0 up in the first game of the second set but immediately broke back.
The two-time Grand Slam winner had a set point at 5-4 but Kyrgios saved it with a fierce forehand and went on to close out the match in a tie-break.
Watson fights back in epic
British women's number two Watson, 23, demonstrated her fighting qualities to come back from a set down to defeat 21-year-old Gavrilova and keep the tie alive.
The Briton, ranked 55, could not convert two set points at 5-4 in the first set and the world number 36 raced clear in the tie-break, winning the first five points before clinching it 7-2.
Watson won four games in a row to level the match and appeared to be in control when she went 2-0 up in the decider.
However, Gavrilova hit back and served for the match at 5-3 with the crucial moment coming at deuce when a forehand from the Australian was called in.
Watson's challenge showed the ball landing wide, she converted the resulting break point and then won the final three games to seal victory in two hours 46 minutes.