On the day when Spain's King Carlos also signed his abdication papers, Spain's footballers left their throne as goals from Eduardo Vargas after 20 minutes and Charles Aranguiz two minutes before halftime earned Chile a stunning victory.
They advanced to the last 16 along with the Netherlands and Australia go out with Spain.
"We cannot complain we did not deserve to go out, they were better than us," Spain coach Vicente del Bosque told Spanish TV.
"The team showed character, we pressed forward but we had little luck in front of goal.
"We were certainly inferior to our rivals here at the finals. It is not the moment to think about the future. Little by little we will make the necessary assessments."
The Dutch, who beat Spain 5-1, and Chile each have six points and they play each other in Sao Paulo next Monday. Spain face Australia in Curitiba bidding to avoid finishing bottom.
"I'm happy with the players' game, the team was up to the challenge, now we have to play against Holland to come first in the group," Chile coach Jorge Sampaoli said.
Spain became the third champions in the last four World Cups to be eliminated at the first hurdle and their departure will almost certainly end the long international careers of the ageing greats who won the 2008 European Championship and their first World Cup in South Africa four years ago.
Chile, who had never beaten Spain in 10 previous meetings, looked sharp, composed and confident from the start and even faster and more fluid in the second half.
Although Spain's Xabi Alonso had a shot saved in the 15th minute, Chile took the lead five minutes later.
A counter-attack on the right set up Aranguiz to provide the cross for Vargas who danced around goalkeeper Iker Casillas before firing home with defender Sergio Ramos arriving too late to stop him.
Casillas, who had a poor game in Spain's mauling by the Dutch, was at fault for the second goal, punching an Alexis Sanchez free kick straight back to Aranguiz who swept the ball home with a spinning shot with the outside of his right foot.
"We ask people's forgiveness," Casillas said. "We are responsible but also the first ones to feel the pain and the frustration. There is nothing left now but to look to the future.
"We will just try to focus on the good things about this team."
