Kyrgios, who beat Rafael Nadal, Stan Wawrinka and Alexander Zverev to win last week's Mexico Open, was expected to meet top seed Novak Djokovic in a mouth-watering third-round clash.
Djokovic, who is now the world No.1, was beaten by world No.39 Philipp Kohlschreiber 4-6 4-6 after the German veteran took out Kyrgios earlier in the tournament. But I feel pretty good right now, because I tried my best and I don't really have any regrets.
Djokovic was playing his first tournament since lifting a record seventh Australian Open title in January and had won eight of nine prior meetings with Kohlschreiber, but he could find no answer for the German in a 6-4, 6-4 loss.
Meanwhile, Kohlschreiber will face Gael Monfils in the pre-quarters.
"I liked my chances more at night against Kohlschreiber", Djokovic said.
Kohlschreiber, 35, stunned the top seed and five-times former champion 6-4 6-4 in Indian Wells, leaving the Serb to conclude it had just been "one of those days".
But in a match that resumed after rain stopped play following completion of just one game on Monday night, Kohlschreiber looked crisp and confident, breaking the Serbian star for a 4-3 lead in the first and pocketing the set with a service victor on his second set point.
Osaka lost to Belinda Bencic 6-3, 6-1 in just over an hour in the fourth round of the first title defense of her career. She'll next face No. 8 Angelique Kerber, who beat No. 9 Aryna Sabalenka 6-1, 4-6, 6-4. Her triumph in Australia made her No. 1 for the first time, but her time at the top has been rocky.
Kohlschreiber defeated Djokovic, 6-4, 6-4, in a third-round match completed Tuesday.
"It's a very special win today", Kohlschreiber said.
"I really wasn't focusing so much on her". "I know from that point on it's going to be a very interesting match".
Then it was Kohlschreiber's turn to show some nerves as a string of four errors, including a double fault, gave Djokovic a break back.
The victor of that match will take on Britain's Kyle Edmund, who beat Macedonian qualifier Radu Albot 6-3, 6-3.
Nevertheless, he thought he was poised for a deeper run, something he'll now try to achieve in doubles alongside Italian playing partner Fabio Fognini.
Muguruza next faces 18-year-old Canadian Bianca Andreescu, who surprised China's 18th-seeded Wang Qiang 7-5, 6-2.
Woman almost kicked off Thomas Cook flight over crop top
She said: "I am getting targeted, and said that my shoulders and arms are out, when a gentleman is in the exact same situation". Trainee accountant Emily O'Connor, from Birmingham, was threatened with being thrown off because she was wearing a "crop top".