Austria's Dominic Thiem celebrates after winning the third-round clash against Novak Djokovic. (Reuters).
Thiem, twice French Open semi-finalist, bounced back after losing the opening set in a tiebreak to win 6-7(2) 6-2 6-3.
Djokovic has not reached the last eight of a tournament since last year’s Wimbledon and has struggled with a long-term elbow injury.
Thiem made the decisive breakthrough in the seventh game of the final set with a powerful backhand down the line and wrapped up the match with another break on his second match point.
Nadal, who needs to win the tournament to stay ahead of Roger Federer at the top of the world rankings, kept on course for his 11th Monte Carlo title with a comfortable 6-3 6-2 victory over Russia’s Karen Khachanov.
The Spaniard converted four break-point opportunities to reach the quarter-finals for the 14th year in a row.
Nadal lost twice to Thiem on clay last year but produced an emphatic display to beat the Austrian in straight sets en route to his 10th French Open title.
"It’s way better feeling if you go against him (Nadal) and know that you’ve beaten him already on this surface,” the 24-year-old Thiem said. "But it’s the ultimate challenge for everybody to play against him.”
Third seed Alexander Zverev overcame a mid-match blip to beat fellow German Jan-Lennard Struff 6-4 4-6 6-4, but was denied a quarter-final meeting with his older brother Mischa, who lost 6-2 7-5 to Frenchman Richard Gasquet.
World number three Marin Cilic progressed without hitting a ball after his opponent Milos Raonic withdrew due to a knee injury.
The Australian Open runner-up next plays Japan’s Kei Nishikori, who beat Italian Andreas Seppi 6-0 2-6 6-3.
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