Nadal was looking for his third slam title of the year after winning the Australian Open and French Open to take the lead in the overall race but he was overpowered by Tiafoe in a 6-4 4-6 6-4 6-3 victory that blows the tournament wide open.
Having pulled out of Wimbledon injured earlier in 2022 and missing both the US Open and Wimbledon tournaments in 2021, this was Nadal's first defeat at a slam since his loss to Novak Djokovic in the semi-finals of the French Open last spring.
Nadal gave a blunt assessment of his performance on Arthur Ashe Stadium, saying: "The difference is easy: I played a bad match and he played a good match.
"I was not able to hold a high level of tennis for a long time. I was not quick enough in my movements. He was able to take the ball too many times very early, so I was not able to push him back.
"Tennis is a sport of position a lot of times. If not, you need to be very, very quick and very young. I am not in that moment any more. Well done for him. He was better than me."
No American man has won a grand slam title since Andy Roddick at Flushing Meadows in 2003, by far their longest drought in tennis history.
Now Tiafoe, the 24-year-old son of immigrants from Sierra Leone who as a child slept in the office of a tennis centre in Maryland where his father was the caretaker, is right in the mix in a tournament that has lost first defending champion Daniil Medvedev and now Nadal.
The result leaves 2014 champion Marin Cilic, who was due to play Carlos Alcaraz in the night session on Monday, as the only former slam winner left in the draw, while it is the first time in nearly 20 years that Nadal, Roger Federer, Novak Djokovic and Serena Williams are all missing from the latter stages of a major tournament.
Tiafoe, who took to the court in a hoodie celebrating Williams' greatness, said of his win: "I don't even know what to say right now. I can't believe it. He's one of the greatest of all time. I played some really good tennis. Something special happened today."
Nadal went into the US Open short on matches after suffering an abdominal tear that forced him to withdraw from Wimbledon ahead of the semi-finals.
He dropped sets to Rinky Hijikata and Fabio Fognini in the first two rounds but looked more like his usual self in a straight-sets victory over Richard Gasquet on Saturday.
Tiafoe, whose only previous slam quarter-final came in Australia three years ago, had not lost a set going into the match and he exploited some sluggishness and unexpected errors from Nadal to clinch the opener.
There were some boos for Nadal when he returned from an eight-and-a-half-minute break, which included having his wrists taped to try to counter the humidity, but he took his chance at the end of the second to level the match.
The Spaniard still did not look settled, though, and Tiafoe raced to his chair after breaking serve in the third set, taking it with one of the best games of the tournament, cracking two winners and an ace.
Nadal tried to inject some energy into his performance early in the fourth set and he moved 3-1 ahead with Tiafoe distracted by the roof shutting, but this was not the Nadal who has won four titles in New York and his opponent surged to the finish line.
Nadal played down the effects of his disrupted build-up, saying: "Of course, this was not the ideal preparation for me.
"We can't find excuses. I have been practising well the week before, honestly. But then when the competition started, my level went down. For some reason, I don't know, mental issues in terms of a lot of things that happened the last couple of months, maybe."
Nadal's wife is expecting their first child back home in Majorca and has reportedly experienced complications with the pregnancy.
The 36-year-old is due to play next at the Laver Cup in London later this month but that appears to be in question, with Nadal saying: "I need to go back.
"I need to fix things, life, then I don't know when I'm going to come back. I'm going to try to be ready mentally. When I feel that I will be ready to compete again, I will be there."