Armstrong capitulated on the 189-kilometre eighth stage from Station des Rousses to Morzine-Avoriaz, finishing 11 minutes 45 seconds behind winner Andy Schleck (Team Saxo Bank).
Australian Cadel Evans (BMC Racing) finished in a group 10 seconds behind to become the first world champion to take the Tour race leader’s yellow jersey since Greg LeMond in 1990 but Armstrong saw his dreams of winning another title fall into oblivion.
“My Tour’s finished,” said seven-time champion Armstrong, who finished third in his comeback year in 2009.
“But I’ll hang in there and enjoy my final Tour.
“I’m not going to complain. This is just a bad day.
“It went from bad to worse.”
Armstrong (Team RadioShack) slipped to 39th place in the general classification rankings, 13 minutes 26 seconds behind two-time runner-up Evans, who assumed the maillot jaune from Sylvain Chavanel (QuickStep).
Ireland’s Nicolas Roche slipped to 16th overall, 3 minutes 11 seconds behind Cadel Evans.
The AG2R La Mondiale rider finished a creditable 24th on yesterday’s stage, coming in 2 minutes 18 seconds behind stage winner Schleck.
Ahead of today’s rest day, Schleck now lies 20 seconds behind in second, with two-time champion Alberto Contador (Astana) third, 61 seconds adrift.
Armstrong endured a nightmare day from start to finish.
First, 6km in, he veered on to a grass verge following a crash at the front of the peloton, then he hit the asphalt on the exit of a roundabout.
“I just came around a roundabout and touched pedal,” said Armstrong of the fall which left him with a ripped jersey. “The front tyre rolled out.
“It’s just hard to recover from something like that.”
Following the fall, Armstrong was paced back to the peloton by three team-mates, but then came the Col de La Ramaz, the 2010 Tour’s first category one climb.
Perhaps the exertion of chasing affected Armstrong, but the Texan was left looking every bit two months short of his 39th birthday as he was spat out the back of the peloton by the relentless pace set by his former Astana team.
“I was behind and they started the Ramaz pretty well and it went from bad to worse,” added Armstrong.
“I’ve had a lot of good days here (at the Tour).
“I’ve had bad days. This is just a bad day.”
With his dream of an eighth title over, Armstrong suffered a further incident, when he was unseated after two Euskaltel Euskadi riders collided in front of him on the 3.6km Les Gets climb.
The American then could not respond on the 13.6km ascent of Morzine-Avoriaz, as he trailed in a distant 61st place, almost 12 minutes behind Schleck.
Schleck, the 2009 runner-up, attacked in the final kilometre to win his first Tour stage in a sprint finish from Samuel Sanchez (Euskaltel Euskadi).
Evans was among a group of nine riders who finished just behind, along with Contador and 2008 champion Carlos Sastre (Cervelo Test Team).
Tomorrow’s ninth stage is the 204.5km run from Morzine-Avoriaz to Saint-Jaune-de-Maurienne, where the general classification standings could be shaken up once again.