The 28-year-old was just one service game away from making the third round at Melbourne Park for the first time, but 15th seed Jack Draper rallied to win 6-7 (3-7) 6-3 3-6 7-5 6-3 in four hours and 35 minutes - the longest match of the tournament.
Kokkinakis served for the match at 5-4 in the fourth set when the win-predictor gave him a 95 per cent chance of victory, but the Brit instead won the next three games.
Kokkinakis is concerned about his future after his injury-hit defeat. (James Ross/AAP PHOTOS)
The Australian was struggling physically all night against Draper, later revealing he wouldn't have been able to play his next match even if he had made it through to face fellow Australian Aleksandar Vukic.
In an emotional press conference, Kokkinakis said he took a "million painkillers" to play at his home slam after pulling out of the Adelaide International last week due to a "crazy amount" of scar tissue in his pec.
"I knew after (the Open) I had some serious decisions to make, and I'm going to miss some time," he said.
"I just tried to kind of empty the tank for this week and see what I can do.
"I've tried to sort it out for years manually, without surgery, just trying to do what I can.
"It's the reason why I can't back up big matches.
"My whole body is fine. It's just the same injury that I worked so hard on to try to get right."
Jack Draper enjoyed silencing the Melbourne crowd when they were giving him the bird. (James Ross/AAP PHOTOS)
The injury-prone right-hander is in his ninth Open campaign after first playing singles at Melbourne Park back in 2014 as a 17-year-old.
He has made the second round six times without ever making it any further.
The Adelaide battler's injury will almost certainly mean he will withdraw from his highly-anticipated doubles match with Nick Kyrgios on Thursday.
The pair famously won the doubles title together at the Australian Open in 2022.
Jack In The Box 📦— #AusOpen (@AustralianOpen) Jack Draper ousts Kokkinakis on JCA in a five-set thriller to advance to his first AO third round! �@wwos • @espn • @eurosport • @wowowtennis • #AusOpen • #AO2025 pic.twitter.com/P2mdoD0NBTJanuary 15, 2025
A "pretty upset" Kokkinakis admitted this loss stung more than any other because he doesn't have "forever left".
"There's no guarantees with surgery," he said.
"I got told my shoulder surgery ... I'd be healed up in three months. Ended up taking me a year and a half to get back.
"One thing is for sure: I can't keep doing what I'm doing. It's mental torture and physical torture."
Kokkinakis showed terrific sportsmanship during the fifth game of the fourth set, giving a point to his opponent.
Draper looked have hit a clear winner when chair umpire Marijana Veljovic bizarrely called a let despite the pair having already exchanged numerous shots.
The confused pair approached Veljovic, with Kokkinakis deciding to hand the point to Draper instead of replaying it.
At the end of the match, Draper consoled Kokkinakis at the net, knowing his rival was in intense pain.
"I had steam coming out of my ears," Kokkinakis said.
"Nothing against him. I just knew my future was looking bleak."