Watson has won four titles in her career
Britain's Heather Watson lost 6-7 (5-7) 7-5 6-1 to Sloane Stephens of the United States in the first round of Indian Wells.
Watson, 29, took an early lead with a first-set tie-break and was a break up in the second before Stephens took command, winning five games in a row.
The world number 73 coasted through the deciding set to progress.
Elsewhere, Aliaksandra Sasnovich of Belarus set up a meeting with US Open champion Emma Raducanu.
Sasnovich, the world number 100, saved nine of the 10 break points she faced to beat Colombia's Maria Camila Osorio 6-0 6-4.
Stephens, who is appearing at the tournament for the 10th time, defeated Watson for only the third time in eight career meetings, and for the first time on hard courts, and will face compatriot Jessica Pegula in the next round.
"After the first set, that was disappointing to lose that one, but I felt like it was a battle and I was still in the match," said the 2017 US Open champion.
"I knew I had to keep fighting and that's what I did, and I'm just really pleased to have squeaked out a win here."
US Open runner-up Leylah Fernandez will face experienced Frenchwoman Alize Cornet in her first match since New York after Cornet defeated Romania's Elena-Gabriela Ruse 6-3 7-6.
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