Murray served for the match in the second set but fell to pieces as Polish player Janowicz - who was playing in Futures events earlier this season - took his first break points of the match before winning the tie-break and the decider.
The US Open champion, the top remaining seed after Novak Djokovic’s shock exit, seemed barely interested in the third set as he was broken twice to crash out early, the 21-year-old Janowicz falling to his knees in joy after continuing his magical run in two hours and 25 minutes.
"I have thousands of different feelings in my heart. I was so happy after winning the first round against Philipp Kohlschreiber, after Marin Cilic I felt unbelievable," he said afterwards.
"I don't know what to say after this match now - it's amazing and I don't know what I can say.
"At the beginning of the year I made a lot of changes, including my racquet and fitness coach, and it worked. Now I'm playing my best tennis and I hope I continue this."
Janowicz, who had beaten Philipp Kohlschreiber and fellow big-server Marin Cilic in the earlier rounds, again impressed with his powerful serving and surprisingly good ground game.
But Murray should have won it. He was controlled and sensible in his play until a bizarre capitulation while serving for the match forced a second-set tie-break, which the Pole won to take it to a third set.
Murray seemed to fall apart, allowing himself to be broken twice as Janowicz backed up his fantastic wide serves with some deft drop shots, while his big-name opponent only occasionally showcased the ability that saw him win Olympic gold and US Open this season.
"He probably gained some confidence from that (match point saved) and started playing better," Murray said.
"He played a good tiebreak, played aggressive, he hits a very flat ball, so when he's hitting it well it comes through the court a lot.
"I have to make sure I tighten that up next week if I get that opportunity in the matches and, yeah, make sure I don't let it happen at the O2," added Murray.
"I'll definitely need to play a bit better than I did this week if I want to get some wins there."
Janowicz has only won Challenger events prior to this, but he has always had potential, having reached two junior Grand Slam finals and starred for Poland in a Davis Cup win over Britain three years ago.
Murray will not be overly concerned about the defeat, having crashed out in the first round at Queen’s before reaching the three consecutive important finals this summer, winning two.
The world number three will now switch his focus to next week’s World Tour Finals in London, which is arguably worth sacrificing this tournament for, given his main opponents will be well-rested after barely featuring in Paris.
The result means David Ferrer is the highest-ranked player left, but Janowicz has shown himself to be a possible star of the future, with the physical and technical attributes to become a top-10 player by this time next year.
Third round results:
4-David Ferrer (Spain) beat 16-Stanislas Wawrinka (Switzerland) 6-2 4-6 6-2
6-Jo-Wilfried Tsonga (France) beat 11-Nicolas Almagro (Spain) 7-6(4) 7-6(3)
Sam Querrey (U.S.) beat 14-Milos Raonic (Canada) 6-3 7-6(1)
8-Janko Tipsarevic (Serbia) beat 9-Juan Monaco (Argentina) 6-3 3-6 6-3
Michael Llodra (France) beat 7-Juan Martin Del Potro (Argentina) 6-4 6-3
Jerzy Janowicz (Poland) beat 3-Andy Murray (Britain) 5-7 7-6(4) 6-2
Gilles Simon (France) beat 15-Kei Nishikori (Japan) WO
5-Tomas Berdych (Czech Republic) beat Kevin Anderson (South Africa) 1-6 6-3 6-4