The Australian won the first set 6-2, which left the Spaniard and the crowd shocked.
But despite Nadal kicking into gear in the second set, he was unable to stop Kyrgios who claimed it at 7-5.
Nadal came into this match knowing that he would be crowned the new world number one when the ATP rankings are updated next Monday.
But he was no match for Kyrgios, who rattled off winner after winner to secure his place in the semi-finals.
He will now face David Ferrer after he beat Dominic Thiem 6-3, 6-3.
The Austrian was no match for the Spanish veteran, who broke serve four times.
Despite Nadal’s defeat to Kyrgios he can go home happy knowing that he will reclaim the world number one spot for the first time since 2008.
This will be the fourth time in his career he has reached the milestone.
The other semi-final will be contested between John Isner and Grigor Dimitrov on centre court at 7pm tonight.
