Li was beaten 21-13, 21-13 by compatriot Sun Yu, who, prior to this match, had never won a single game against the Olympic champion in their four previous encounters.
Li's departure now opens the door for a number of other contenders to win the title.
One person who is on track to accomplish that is defending champion Wang Shixian. The world number two took one step closer to retaining her All-England crown after a hard-fought win over South Korea's Bae Yeon Ju.
Wang cruised took the first game 21-12, but looked a lot more sloppy in the second as she allowed Bae to force a decider. However, the Chinese fans in attendance would have something to smile about as Wang dominated Bae in the decider to win the match 21-12, 13-21, 21-9.
However, two opponents who could cause Wang some grief are 2009 champion Wang Yihan and India's Saina Nehwal, who won bronze at the 2012 Olympics. Wang and Nehwal will be facing each other in the quarter-finals following victories in the last 16.
Wang nearly joined Li on the plane home after she dropped her first game against Japan's Minatsu Mitani 21-23. However, she came to the fore in the second and third games though to register a 21-23, 21-6, 21-16 win.
Nehwal meanwhile had no problems in her match against South Korea's Kim Hyo Min as she coasted to a 21-15, 21-15 win.
There were no major upsets in the men's singles as Lin Dan and world number one Chen Long both recorded straightforward victories.
Lin managed to beat his Chinese compatriot Tian Houwei 21-15, 21-19 despite flashes of brilliance from his 24-year-old opponent.
Chen, who has been struggling with muscle spasms in his neck, made his intentions clear right from the beginning as he brushed aside Hsu Jen Hao of Chinese Taipei 21-7, 21-9.
Lin will now face Japan's Kento Momota in the quarter-finals, while Chen will take on Chou Tien Chen of Chinese Taipei.