Raonic dropped a 6-7 (3), 7-6 (7), 7-6 (8), 6-4 decision to American Sam Querrey. The match was suspended a day earlier because of darkness with the score tied at one set each and 3-3 in the third.
Nestor and Max Mirnyi of Belarus fell in the second round at the All England Club for the second straight year. Italy's Daniele Bracciale and Julien Knowle of Austria upset the top-seeded duo 6-4, 6-4, 6-4.
Nestor and Mirnyi lost to Knowle and South African Kevin Anderson last year.
Raonic, the No. 21 seed, fired 25 aces but converted only one of five break-point opportunities.
"Yesterday was tough but I thought today I could improve a lot of things," said Raonic. "But I just didn't do it. I shanked a lot of balls and missed a lot.
"It's frustrating, I only stepped up when I was down and he was serving for it. I had two set points in both of the tiebreaks I lost. I was just hoping for him to make errors."
Querrey, who had 21 aces, won the critical third set in a tiebreaker. Raonic, who came back after dropping the first four points, later saved three set points but missed on one of his own with a backhand error.
Raonic lost the set as his chip volley at the net sailed long.
Querrey began the fourth set with a break of the frustrated Canadian, with Raonic saving a pair of match points in the last game before Querrey ended the match with an ace.
Querrey, a former top-20 player, is currently ranked No. 64 in the world. He's mounting a comeback after undergoing right elbow surgery a year ago.
"Usually I'm pretty calm and collected after a win or loss, but, yeah, kind of let it out there a little bit at the end. It just felt good," said Querrey.
"I was out for a while, and I feel like I'm coming back. Ranking is moving up," he added. "Just nice to be in the third round of a Slam again."
He advanced into the third round at a Grand Slam tournament for the first time since the 2010 U.S. Open.
"I have to learn to win more playing poorly," said Raonic. "I had the chance to win while not playing well.
"At a Grand Slam with seven matches in two weeks you will play poorly in at least one. I have to learn to get through those. I played poorly yesterday and knew what I needed to do to get better.
"Today I played worse. That's not a motivating feeling."
Raonic, from Thornhill, Ont., was also eliminated in the second round last year at the All England Club.
He was forced to retire from his match against Gilles Muller of Luxembourg after slipping on the grass as he chased a shot. Raonic later underwent hip surgery and was out of action for several weeks.
Nestor and Mirnyi, meanwhile, never found their rhythm against Knowle and Bracciale. The top seeds were broken once per set in a match that last just under two hours.
"They were pretty good, just better in most aspects," said Nestor. "We had two break points early in the first set and we didn't do anything with them. They returned better, more happened when they were serving.
Nestor continued to be puzzled by his lack of success on grass after winning on clay at the French Open three times.
"It bothers me, I don't understand how I can win the French on a surface I didn't grow up on. I didn't grow up on grass either but it should suit my game," he said.
Nestor will now focus on the mixed doubles draw. Nestor and Germany's Julia Goerges are seeded eighth.
— With files from the Associated Press.