Osaka was expected to book her spot in the quarter-finals of the WTA 1000 tournament but the defending finalist and No.2 seed sensationally crashed out in three sets on Friday (AEST).
World No.2 Osaka looked on track for a routine win after racing out to a 3-0 lead before closing out the first set, but the Japanese star was clawed back by unheralded wildcard Teichmann 3-6 6-3 6-3.
Teichmann claimed the biggest win of her career after rallying past Osaka, who lost for just the fourth time when winning the first set since 2017 – a record which was 118-3.
"I thought she played really well. I thought in the first set I was doing everything I was supposed to do, and then in the second set I feel like, and also in the third set I felt like I was a bit too defensive maybe," Osaka said.
"I felt like I learned a lot from this match today, and I felt that, if anything to take away from this, I tried my best throughout the entire match, so I can sleep at night."
Olympic gold medallist Belinda Bencic awaits Teichmann in an all-Swiss affair after the No.10 seed led 7-5 2-1 when Karolina Muchova retired hurt.
There were also victories for three-time slam winner Angelique Kerber and two-time Major champion Petra Kvitova as they prepare to meet in the last eight.