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Nadal arrived at the Wimbledon warm-up event admitting he felt exhausted in the aftermath of his record-equalling sixth triumph at the French Open and he was unable to live with Tsonga's sublime display.
Despite his tiredness this was still a major blow for the Spaniard, who had reached seven successive finals before this defeat, and it leaves him short of game time on grass ahead of the defence of his Wimbledon title later this month.
"After losing the second set, mentally I lost my concentration. It has been a lot of matches in a row and after that break in the third set it was a mountain for me to come back," said Nadal.
"I am a little tired. I wasn't there like usual and certainly I think I need a little bit of break."
Tsonga added: "The first time I reached the world top 100 was here at Queen's and today I have beaten the world number one," said Tsonga. "It was close to my best tennis -- it has to be to beat Rafa."
The match wasn't even two games old when a light shower forced the players off court, but they returned within half an hour to slug it out in a gruelling first set.
Nadal had been below his best in a three-set win against Radek Stepanek in the previous round and Tsonga provided an even greater threat than the Czech veteran.
He refused to give an inch to Nadal as the first set went without a break of serve.
The tie-break was equally close, but Nadal raised his game at the key moment and, aided by a Tsonga double-fault that gave him set-point, the Spaniard buried a volley to take the set.
Tsonga came at Nadal just as strongly in the second set however and the Wimbledon champion found it harder to keep him at bay this time.
The Frenchman's brilliant diving winner put Nadal under pressure at 4-4 and he broke when Nadal dragged a forehand well wide before producing a strong service game to send the match to a final set.
Nadal looked a spent force now and Tsonga went for the kill. He broke twice in quick succession to establish a 3-0 lead and was never in danger of relinquishing his advantage.
Tsonga was a picture of joy as he danced on the court in celebration of only his second career win over Nadal, a triumph that sets up a semi-final against either compatriot Adrian Mannarino or British wildcard James Ward.
Andy Roddick kept his bid for a record fifth Queen's title on course as the American set up a semi-final clash with Andy Murray after beating Spain's Fernando Verdasco 6-2, 6-2.
Since his last Queen's triumph back in 2007, Roddick has been trying to break the record for most singles' titles here, which he currently shares with six other players including John McEnroe, Boris Becker and Lleyton Hewitt, and he looks in the mood to end the wait judging by this emphatic win.
Britain's Murray reached the semi-finals after his last-eight opponent Marin Cilic was forced to pull out before the match due to an ankle injury.
World number four Murray has been struggling with ankle ligament damage since the French Open, but it was Croatia's Cilic who was unable to recover from his own similar problem.
"I would rather have played and got another match on grass but I just have to take this as a rest day, which in some ways is a good thing," Murray said.
Murray could be joined in the semi-finals by his compatriot Ward as the British number two is currently level at one-set all against Mannarino, after earlier knocking out defending champion Sam Querrey.
