The No.1 seed and two-time AO winner trailed McDonald 4-6 3-5 when he took a medical time-out after pulling up chasing a forehand, looking to have sustained a left hip or glute injury.
The 36-year-old Spaniard returned to play out the match but was compromised, McDonald winning 6-4 6-4 7-5 in two hours and 32 minutes.
Nadal, a Spanish 36-year-old, who was struggling with what appeared to be a hip injury, slumped 6-4, 6-4, 7-5 under a closed roof on Rod Laver Arena.
"I'm really happy with how I started that match," McDonald said. "I thought I was playing really well, serving great, returning well too. I was really taking it to him."
There have been times when Rafael Nadal has pulled out of Grand Slam matches - today he felt he could continue with no further problems.
He was barely moving, but serving quite nicely, but once he was broken it was all over.We have to say how well Mackenzie McDonald played.
He absolutely made all the running in the early stages. Nadal was clinging on.
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