The world number one was expected to cruise into the Far East final but went down 6-4 6-4 to the 28-year-old, as his slump in form continues.
Having exited Wimbledon at the third-round stage, the Serbian was beaten in the first round of the Olympic singles before a run to the final of the US Open.
However, Stan Wawrinka proved too good on that occasion and Djokovic then took time out to recover from injury before returning for this week's tournament.
It has been a frustrating period for the 12-time Grand Slam champion and his temper got the better of him several times on Saturday.
The Monte Carlo resident smashed his racket, tore his shirt and argued with the chair umpire during the straight-sets reverse.
Djokovic was clearly unhappy with proceedings but Bautista Agut could hardly contain his excitement at claiming the biggest scalp of his career.
"I'm so happy," he said. "I'm just so happy how I've played this week. I'm feeling really good on this court and I hope to enjoy it until the last point here."
Britain's Andy Murray faces Gilles Simon of France in the other last-four contest.