Henry De Bromhead's mare has begun her season by winning this contest in each of the last three years and went to post looking to create history by becoming the first four-time winner of the Grade One hurdle.
Starting what is likely to be her last season in training, everything seemed to be going to plan for the eight-year-old and her ever-present accomplice Rachael Blackmore when they cruised to the lead two from home.
But Willie Mullins' Klassical Dream and Teahupoo were in striking distance at the final flight, and it was Gordon Elliott's 20-1 shot who pulled out most in the closing stages to prevail by a neck on the line.
Klassical Dream took second, with Honeysuckle beaten two and a half lengths in third.
De Bromhead said: "It's a horse race and unfortunately she got beaten and that's it. We've had some run with her for so long and there we go. They're going to get beaten one day. She's been incredible and fair play to the winner."
Elliott and jockey Jack Kennedy were completing a Grade One double after Mighty Potter's success in the Drinmore Novice Chase earlier on the card.
Teahupoo had been comprehensively beaten by Honeysuckle at both Cheltenham and Punchestown last term, but Elliott felt conditions may have been against his charge on those occasions, with Fairyhouse's soft ground a much better fit.
He said: "He was very good last year on soft ground and we ran him on good ground a couple of times which was probably a mistake but we are still learning about the horse.
"Jack gave him a wonderful ride. He let it all happen in front of him and there is only one winning post.
"It's been a brilliant day with two Grade Ones and we were only beaten a head for three."
Teahupoo's owner Brian Acheson admitted to mixed feelings in victory.
He said: "That was unexpected. I came here wanting Honey to keep winning and if we finished second, that was brilliant.
"We have such a close association with Kenny (Alexander, Honeysuckle's owner) and Henry.
"I'm genuinely in shock. I thought the mare was unbeatable - it will hit me tonight.
"There is a ting of sadness that the run is ended. I just hope she comes back and beats Constitution Hill (at Cheltenham)!"
Honeysuckle is now an 8-1 shot with Coral to rack up a third Champion Hurdle win at Cheltenham in March, with Nicky Henderson's Constitution Hill cut to 2-7 from 4-7 for the Festival highlight.
Betfair offer 5-1 about Honeysuckle's chance in the Mares' Hurdle, a race she won in 2020.