The world number two improved his two-over par first round score to card a level par 72 but that was not good enough to keep him in the tournament at Carton House, County Kildare.
"It's disappointing as I feel I played okay today but it's not nice not to be competing. But there were a few good things out there. I just need to work on my game," McIlroy told Sky Sports.
The 24-year-old Northern Irishman, twice a Major winner, was 11 shots off the lead, held jointly by American Peter Uihlein and England's Robert Rock on nine under.
Rock shot a six-under-par 66 to join Uihlein at the top of the leaderboard while both were being pressed by former Ryder Cup captain Jose-Maria Olazabal, after a 69 put him in a group on seven under par and joint second.
Olazabal hasn't given hope of winning, telling reporters: "The captaincy took a lot out of me. I could not dedicate as much time to my game. I have never lost hope, that's why I spend hours and hours on the range.
"Health-wise I have had problems but at the moment I cannot complain. But the main goal is to keep improving my game to get myself in positions like this."
Overnight leader Oscar Floren of Sweden could not match his first round 66 but did manage to produce another sub-par round of 71 to join Spaniard Olazabal on seven under for the tournament.
McIlroy wasn't the only big name to flop. Ireland's other three Major winners - Darren Clarke, Padraig Harrington and Graeme McDowell - all fell by the wayside.
McIlroy's form has dipped alarmingly since he changed his club manufacturer towards the end of 2012. In the last five months of that year he won four tournaments and was top of the world rankings but in 2013 he has one top-five finish in 13 events, including Ireland.
The 142nd British Open is at Muirfield from July 18-21.
- Sports & Recreation
- Carton House
- Robert Rock