The 2019 Snooker Shoot Out winner was beaten 4-3 by Q School debutant Nattanapong Chaikul.
The 17-year-old player from Thailand produced breaks of 75 and 54 in the opening two frames as he raced ahead.
Holt levelled the score, but Chaikul was quick to regain his lead with a break of 59. Then, an impressive showing in the sixth frame from the former world number 20 took the match to a decider.
Nevertheless, the teenager showed true class as he produced a break of 79 to seal his place in the third round of Q School.
Chaikul will now take on Brandon Sargeant in what could be a tense affair considering both men are now just four wins away from banking a tour card.
For Holt, the defeat marked his latest disappointment in a string of underwhelming outings.
The 43-year-old lost his place on the tour following an early exit at this year's world championship qualifiers in Sheffield.
The Hitman still has a chance at regaining his place on the tour, however, he will have to reach the semi-finals in one of the last remaining two Q School events.
Another teenage sensation?
Chinese 18-year-old prospect Liu Hongyu also progressed to the next round following a 4-3 win over promising Belgian talent, Ben Mertens.
On his way to the victory, Liu produced the highest break of the tournament so far, a steady 137. He will now take on Alfie Lee.
Elsewhere, 15-year-old snooker sensation Stan Moody faced a difficult day in Sheffield after losing 4-0 to 22-year-old Mark Lloyd.
Lukas Kleckers, on the other hand, bounced back in style from his tour relegation as he picked up a 4-0 win over James Burrett.
Rod Lawler also impressed after producing a whitewash victory over Faizaan Mohammed.