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Youzhny was the second former winner of the clay-court event to be eliminated after two-time champion Nikolay Davydenko lost on Monday. Youzhny was the 2010 winner.
Fifth-seeded Alexandr Dolgopolov defeated Ukrainian countryman Sergiy Stakhovsky 6-4, 6-2 while sixth-seeded Florian Mayer of Germany, the 2011 runner-up, struggled to overcome qualifier Lukasz Kubot of Poland 7-6 (7/2), 4-6, 7-5.
Evgeny Korolev of Kazakhstan upset Marcos Baghdatis of Cyprus 7-5, 7-6 (7/3) and Ernests Gulbis of Latvia beat Jarkko Nieminen of Finland 6-4, 6-2.
Other winners included Viktor Troicki of Serbia and Grega Zemlja of Slovenia.
Results from the ATP Munich Open on Tuesday (x denotes seeding):
First round
Gael Monfils (FRA) bt Jurgen Melzer (AUT x8) 6-3, 6-3
Evgeny Korolev (RUS) bt Marcos Baghdatis (CYP) 7-5, 7-6 (7/3)
Grega Zemlja (SLO) bt John Millman (AUS) 6-2, 6-2
Viktor Troicki (SRB) bt Matthias Bachinger (GER) 6-3, 6-2
Radek Stepanek (CZE) bt Mikhail Youzhny (RUS x7) 6-4, 5-7, 6-4
Ernests Gulbis (LAT) bt Jarkko Nieminen (FIN) 6-4, 6-2
Florian Mayer (GER x6) bt Lukasz Kubot (POL) 7-6 (7/2), 4-6, 7-5
Alexandr Dolgopolov (UKR x5) bt Sergiy Stakhovsky (UKR) 6-4, 6-2
