The Yamaha rider had won the last two rounds of the series in Italy and Catalunya, and also set the fastest time in Thursday's opening practice session.
But he suffered a very heavy fall into the viciously fast Turn 13 kink as he caught an area of standing water, landing on his left shoulder.
It was quickly confirmed by race organisers that the Spaniard had broken his left collarbone and that he will play no further part in proceedings this weekend.
Lorenzo is due to spend tonight in hospital before returning to Barcelona on Friday to undergo surgery.
Lorenzo trails Repsol Honda's Dani Pedrosa by seven points in the title race.
Pedrosa's team-mate Marc Marquez set the pace in the sodden afternoon session, but his best lap of one minute 47.671 seconds was some 12 seconds off Lorenzo's best from the dry morning running.
A statement on the competition's official website said: "The fractured collarbone was confirmed just under 10 minutes after the session ended.
"He (Lorenzo) will now remain under observation in an Assen hospital for 12 hours and a CT scan will be carried out, before returning to Barcelona where surgery will take place on Friday."
Valentino Rossi, carrying the hopes of the Yamaha factory squad in the absence of reigning world champion Lorenzo, was second fastest in the wet afternoon running with Pedrosa third and Britain's Cal Crutchlow seventh on the Tech 3 Yamaha.
But it was the morning session which provided the fastest times, with Crutchlow continuing his superb season to date with the second-fastest time behind Lorenzo, who led the way with a lap of one minute 35.263 seconds.
Marquez was in third, with Rossi fourth and Pedrosa fifth as the championship leader took a steady approach to his practice work.
Aleix Espargaro was the star performer of the day as he claimed the sixth-fastest time on his CRT Aspar Aprilia to push the satellite Hondas of Stefan Bradl and Alvaro Bautista down to seventh and eighth.
Michele Pirro was the best Ducati on the Pramac machine in ninth, with Bradley Smith a solid 10th as he rode for the first time since undergoing surgery on his left wrist and hand.
Ducati's poor pace in the dry left the factory bikes of Andrea Dovizioso and Nicky Hayden down in 11th and 12th, although they were fifth and six once the rain came down later in the day.