Thorpe, whose rushed comeback bid has captivated the public Down Under, charged out of the blocks but flagged dramatically in the final lap to finish sixth in his semi-final and 12th overall to miss the final.
The five-times Olympic champion had earlier teased a thrilled crowd at the South Australia Aquatic and Leisure Centre by qualifying equal fifth fastest into the semi-finals after a solid swim in the morning preliminaries.
But the silence was deafening as he emerged crestfallen for a poolside interview, having tripped up at the penultimate hurdle.
"I'm terribly disappointed," said the shell-shocked 11-times world champion. "This is slower than what I swam this morning ... The fairytale has turned into a nightmare. I'll hear about it tomorrow."
The 29-year-old's time of one minute, 49.91 seconds was more than two seconds behind pace-setter Ryan Napoleon and five seconds adrift of his personal best set in 2001.
It leaves Thorpe with a mammoth task to book a ticket to London, with the 100 freestyle - his last-chance saloon - boasting an ultra-competitive field including world champion James Magnussen and the other members of the gold-medal winning relay team from last year's world titles in Shanghai.
Thorpe's failure in the 100 would amount to a major embarrassment for governing body Swimming Australia, which has backed the swimmer to the hilt to fund his comeback and those of a number of ageing former champions making a last bid for London.
The crowd's disappointment was compounded by the failure of sentimental favourite Libby Trickett, another swimmer on the comeback trail, to qualify in the 100 butterfly.
The triple Olympic champion came third in the final behind winner and world silver medallist Alicia Coutts to miss out on the chance to defend her title in London.
Coutts and runner-up Jessicah Schipper booked their London tickets as the top two place-getters but had to weather a fierce challenge from the 27-year-old Trickett, who has another chance to qualify in the 100 freestyle at the weekend.
"I really had no idea what to expect tonight," she said in a poolside interview, struggling to hold back tears.
"So close to nearly on the team, but that's going to give me so much confidence going into the freestyle ... It's going to be incredibly tough just like tonight was."
There was better news for Olympic champion Leisel Jones, whose comeback bid remains on track after qualifying second into the final of the 100 breaststroke behind Leiston Pickett.
Christian Sprenger won a thrilling duel to the line to deny former world champion Brenton Rickard his eighth consecutive Australian title in the 100 breaststroke.
Kylie Palmer, runner-up in the 200 freestyle at Shanghai, edged out Bronte Barratt to win the 400 title with a new Australian record.
Belinda Hocking, runner-up in the 200 backstroke at last year's world championships in Shanghai, qualified fastest for the final of the 100 and edged out teenage Olympic medley gold medallist Emily Seebohm.