Ivanovic had failed even to win a set in four previous clashes against Williams, who was on a 25-match winning streak, but the 14th seed produced a stunning display to triumph 4-6 6-3 6-2.
Williams’ coach Patrick Mouratoglou had said before the tournament he thought she could win all four Grand Slams this year, but instead the 32-year-old has again suffered a shock defeat in Melbourne.
Two years ago the world number one also lost in the fourth round to Ekaterina Makarova while last year Williams was beaten by fellow American Sloane Stephens in the quarter-finals.
Ivanovic said: “It’s amazing, I’m so thrilled. It’s not easy playing such a champion. But she’s also human and I know she has a lot of pressure. I really went out there swinging.”
There were reports prior to the match that Williams was struggling with a back problem, and the 32-year-old certainly looked out of sorts from the start.
Meanwhile Novak Djokovic is prepared for another epic when he plays Stanislas Wawrinka in the men’s quarter-finals.
Their fourth-round clash at Melbourne Park 12 months ago, which Djokovic won 12-10 in the fifth set after five hours, was arguably the match of the season. It was also the match that convinced Wawrinka he belonged at the top of the game.
Wawrinka went on to have the best season of his career, beating Andy Murray at the US Open to reach his first Grand Slam semi-final, where he again pushed Djokovic to five sets.
“I have to be ready to play another 12-10 in the fifth like last year,” said Djokovic. “I know that he’s playing the tennis of his life in the last 15 months.
“He’s a top-10 player now. He’s established himself at the top level. He won against some top guys in the big tournaments.”
The three-time defending champion made it 28 straight wins since losing to Nadal in the US Open final and 24 in a row at Melbourne Park with a crushing 6-3 6-0 6-2 victory over Italian Fabio Fognini.