LONDON, 16 Oct, 2014 (AFP) - The Northern Irishman reached he quarter-finals of the event on his debut in 2011, the final in 2012 and was crowned champion last year, while his opening day victory over Alexander Levy gave him an overall record of 15 wins from 17 matches.
However, the Ryder Cup star and former US Open champion went down 2 and 1 to Mikko Ilonen at the London Club.
"I'm disappointed to lose today but Mikko was incredibly solid," McDowell said. "I felt like I played the best golf the first five holes but he putted better and that was the difference."
But for Stephen Gallacher, McDowell's Ryder Cup team-mate, his last hole loss to Pablo Larrazabal -- the Spaniard holed a 30-yard pitch on the 18th -- meant the Scot had been beaten in 10 consecutive singles defeats across six different match play competitions.
Gallacher, beaten on his Ryder Cup debut by Phil Mickelson at Gleneagles last month, said: "I was five under today and have played two guys that haven't had any bogeys.
"It's not a jinx," added Gallacher, who lost to Ireland's Shane Lowry in his opening group match and cannot qualify for Saturday's quarter-finals even if he beats Ryder Cup team-mate Victor Dubuisson on Friday
"What happened at the last is typical match play golf as he's won it with a birdie without having been on the fairway."
Larrazabal's winning shot was reminiscent of many played by his late compatriot Seve Ballesteros, the five-time winner of this event.
"Obviously Seve was an inspiration for all of us. We know his record in match play, maybe the best in history," said Larrazabal. "But I'm trying to do it my way and I try my best in every shot, and the best shot of the day was the last."
Results from the second day of the European Tour World Match Play Championship at the London Golf Club, Kent, England, on Thursday:
Victor Dubuisson (FRA) bt Shane Lowry 3 and 2
Pablo Larrazabal (ESP) bt Stephen Galalcher (SCO) 1 up
Mikko Ilonen (FIN) bt Graeme McDowell (NIR) 2 and 1
Joost Luiten (NED) bt Alexander Levy (FRA) 4 and 3
Henrik Stenson (Swe) bt Francesco Molinari (ITA) 2 and 1
George Coetzee (RSA) bt Thongchai Jaidee (THA) 2 and 1
Jamie Donaldson (WAL) bt Jonas Blixt (SWE) 3 and 2
Patrick Reed (USA) bt Paul Casey (ENG) 2 and 1