Loeb's car stopped seven kilometres into the Santa Clara test, with following crews reporting that he had gone a long way off but was unhurt.
Citroen team principal Yves Matton confirmed Loeb's early bath and explained the unusual circumstances of the eight-time world champion's exit.
"They went off in a situation when the road turned on the top [of a crest], the road turned to the right and Sebastien turned to the left," said Matton. "The pace note was good, but he didn't follow the indication, just before the top the road was going a little bit to the left and we think he was looking more to the road and he didn't follow the note."
Matton added that the accident was not high speed, but the car rolled off the road.
"Sebastien said the impact was not heavy," he said. "We don't know how many times the car rolled, but enough to make sure it won't start tomorrow."
The cage in the DS3 is damaged on the roof rather than in the pillars.
"The rollcage is bent," said Matton. "This can happen, it's a rally. We still have one car and we'll try to take maximum points with Mikko [Hirvonon] and try to be leading at the end of the rally."
Loeb had ended stage two third behind the Fords of Petter Solberg and Jari-Matti Latvala, as Citroen's plan of running first on the road appeared to backfire.
Other early incidents included Dani Sordo losing the use of all but one headlight on his Mini on SS2 and then pulling out before SS3, and local hero Armindo Araujo dropping five minutes behind when he went off very early on the evening's first stage.