The five-time winner of the Grand Slam event in Melbourne was struggling with an ankle and back injury throughout her quarter-final encounter against her teenage opponent.
Williams was able to take the match into three sets but ultimately lost to Stephens 3-6 7-5 6-4 to end her chances of adding to her 15 Grand Slam titles this month.
The 31-year-old revealed her disappointment at losing in the quarters but admitted she is looking forward to recovering from the injuries she has sustained in recent weeks.
Williams said: "I'm almost relieved that it's over.
"Because there's only so much I felt I could do. It's been a little difficult. I've been thrown a lot of balls this week.
"I've had a tough two weeks between the ankle, which is 'this big' every day, and my back. A lot of stuff."