Londoner Yarde hoped home advantage and an electric atmosphere would propel him to the WBO, WBC and IBF world light-heavyweight titles.
But the brilliant Beterbiev proved too strong for his gutsy 31-year-old opponent - seven years his junior - as the Montreal-based Russian took his 19th victory when Yarde's corner called off the fight.
Two-time world champion Tyson Fury was ringside for Saturday's highly-anticipated fight as his half-brother Tommy Fury faced off for the first time with Jake Paul ahead of their bout in Saudi Arabia next month.
But Fury's title-winning stardust did not rub off on his compatriot Yarde, as the Beast from the East's second world championship challenge ended in the same fashion as his first - in defeat.
Prior to Saturday's contest, Yarde's solitary career loss came against another Russian, Sergey Kovalev, in August 2019.
The British boxer travelled to Kovalev's home city of Chelyabinsk, and gave an impressive performance, being close to victory in the eighth round before he was eventually knocked out in the 11th.
Here, Yarde's challenge lasted until the second minute of the eighth round.
Wearing white trunks and a sparkly gold trim, Yarde came out all guns blazing, moving at pace around the ring and landing with his left in a strong opening round.
An equally-impressive second followed as Yarde stunned Beterbiev, dressed all in black, with a strong uppercut.
On to the third and Yarde's early promise showed no sign of waning despite Beterbiev landing a big shot right before the bell.
However, that would be the sign of things to come for Yarde as Beterbiev upped the ante in the fourth with the wobbling Londoner pinned up in the corner amid of flurry of punches from his Russian opponent. Yarde survived the onslaught in the round of the fight so far.
In the fifth, it was Yarde's turn to deliver some damage, landing a left hook to send Wembley wild only for Beterbiev to end the round with an uppercut, and Yarde clinging on in this ding-dong battle.
Some predicted Yarde would be blown away by Beterbiev, but at the midway stage, the home favourite, albeit with a cut under his left eye, was just managing to hold his own.
But in the seventh round, Yarde was on the ropes as Beterbiev's class began to show, and in the eighth it was all over when he was caught with a peach of a right hand.
Yarde was sent to the canvas but he bravely attempted to fight on after surviving the 10-count.
However, moments later, his corner took control, calling on referee Steve Gray to end the fight as Beterbiev sunk to his knees after claiming his 19th knockout from as many bouts.
Earlier, the highly-rated heavyweight Moses Itauma delivered a stunning first-round knockout to win on his professional debut.
English teenager Itauma, 18, regarded as one of the rising stars of the sport and hailed by Frank Warren as the future of heavyweight boxing, sent Marcel Bode to the floor with just 14 seconds on the clock following a devastating left hander.