The top-ranked Serb fell to the floor Sunday with back pain during the third game of the second set after losing the first set to Juan Martin Del Potro 7-6 (5).
Djokovic pulled out of the opening singles Friday against David Nalbandian because of back pain, four days after beating Nadal in the U.S Open final. He was replaced by Viktor Troicki, who lost 6-4, 4-6, 6-2, 6-3.
Del Potro beat Janko Tipsarevic in the opening singles Friday, while Serbia staved off elimination from the semifinals by beating Argentina in straight sets in Saturday's doubles, hoping Novak Djokovic can lead a comeback in the best-of-five series.
But, it wasn't to be as Djokovic struggled against Del Potro mostly while serving. He was stretching during changes of sides and took a medical between the two sets.
"I feel disappointed to end this tie this way," Djokovic said. "My condition was 60 percent of what I had expected."
Djokovic, who had an incredible 64-2 winning streak this year entering this match, said it was his decision to play Del Potro on Sunday.
"He was playing on a very high level," Djokovic said. "I can't say that even if I was healthy that I would have won. He was serving so well that even when I was on the ball, I could not handle the returns."
Del Potro said he felt confident entering the match against Djokovic.
"I felt real confidence on my serve and my forehand," Del Potro said. "Argentina deserved to win."
He said Spain is the favorite in the finals.
"But, we wish to win the Davis Cup, which will be difficult for us," Del Potro said.
Argentina won its first Davis Cup semifinal away from home. Since the formation of the World Group in 1981, Argentina made nine semifinal appearances, losing all six on the road before beating Serbia this weekend.
Serbia entered the semifinals with a seven-match Davis Cup winning streak. The last team to beat Serbia in a home series was Belgium in 2005, which also was the last time Djokovic lost a singles match at home.