The top-seeded Ljubicic was sent packing by last year's Zagreb runner-up Michael Berrer, as the left-handed German posted a 6-4, 6-4 victory, despite an 11-ace effort from the big Croat.
The former top-five star Ljubicic was the Zagreb champion back in 2006.
Berrer will meet Austrian qualifier Jurgen Melzer in Friday's quarterfinals.
Meanwhile, the fourth-seeded Dodig downed Turkey's Marsel Ilhan 7-6 (7-5), 7-5 on the indoor hardcourts at Dom Sportova.
Dodig defeated Berrer in last year's finale here.
In some other second-round action, seventh-seeded Dutchman Robin Haase outlasted German Matthias Bachinger 7-6 (7-4), 3-6, 6-3, while Melzer upended fifth-seeded Italian Andreas Seppi in a mild upset, 6-2, 6-3.
In some second-round action here on Thursday, Dodig will face Garcia-Lopez and sixth-seeded former Australian Open runner-up Marcos Baghdatis will encounter Poland's Lukasz Kubot. The Cypriot Baghdatis was the Zagreb champ in 2007.
This week's titlist will collect $90,000.
Zagreb and Montpellier, France are the first European stops on the 2012 ATP World Tour calendar.