The first-round exit was the 2009 champion's first at Melbourne Park
and only his second at such an early stage in a grand slam.
Down 2-0 in the final set, world number 45 Verdasco dragged himself
off the canvas with a barrage of booming forehand winners, breaking
Nadal twice to move to the brink of victory.
He then broke his compatriot a third time, sealing the four hour and
41-minute classic with a cross-court winner that left the Rod Laver
Arena crowd stunned late in the day session.
"I just hit everything. I think I played unbelievable in the fifth
set from the break," Verdasco said in a courtside interview.
"I just started hitting winners. I don't know how. I was closing the
eyes and everything when I was coming in.
"I kept doing it so it went well."

After shaking hands with his opponent and the chair umpire Nadal
strode quickly off the court, barely pausing to acknowledge the
crowd with a wave.
The only other time Nadal was beaten so early in a grand slam was
when Steve Darcis sent him crashing out of Wimbledon in 2013.
"The match is five sets... he was playing amazing in the last set,"
Nadal told reporters. "He had a lot of success all the balls hitting
full power in the fifth."
'HAPPY FEELINGS'
Before the tournament, Nadal had spoken of bringing "happy feelings"
to Melbourne Park, after arriving his healthiest in years following
a taxing off-season training camp.
But his exit will do little to dispel the belief that the 14-times
grand slam champion's best days are behind him.
Nadal failed to progress further than the quarter-final of any of
the grand slams last season, his first without a major trophy since
2004.
Verdasco was inspired, however, hauling himself back from the brink
with a stand-and-deliver game that mixed 90 winners with 91 unforced
errors.
It was partial revenge for his loss in an epic five-set semi-final
against Nadal in the 2009 tournament, the second longest match
recorded at the Australian Open.
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The 32-year-old served masterfully in each tiebreak, particularly in
the second to keep the match alive, but wobbled early in the fifth
when he was broken early.
Fortune often plays a part in the defeat of Nadal and so it proved
for Verdasco, who swung wildly at a second serve with the frame of
his racquet, sending the ball cross-court to clip the line and break
back to 2-2.
He raised his hands in apology before acing Nadal to nudge ahead and
ramped up the aggression on his more fancied opponent's serve.
The pressure told on Nadal, who made his sixth double-fault to
concede a break point, and Verdasco outfoxed the Spaniard in a
fierce baseline rally to capture the decisive break.
A raging ball of fire, Verdasco roared on to complete one of his
finest victories and land a hammer blow on Nadal's early season
confidence.
"It's tough especially because it's not like (it) was here last
year," added Nadal, who was beaten by Tomas Berdych in the
quarter-finals a year ago.
"This year was a completely different story -- I had been playing
and practicing great and working so much, so it's tough when you
work so much and you arrive at a very important event and you go out
so early."
(Editing by Martyn Herman/John O'Brien)
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