The top seed from Thornhill, Ont., dropped his second-round match Wednesday at the Eastbourne grass-court tournament, falling 6-2, 7-6 (7) decision to Croatian Ivan Dodig.
The Eastbourne event also wasn't kind to Toronto's Daniel Nestor, who earlier lost his first-round doubles event with Swedish partner Robert Lindstedt.
Raonic will open Wimbledon next week as the men's 17th seed but heads to the All England Club badly lacking in grass confidence.
"I couldn't have started in a worse way, I think I missed four backhands to start off the match," said Raonic. "I had break chances and then lost my serve easily again.
"He was doing a lot of things well, but a lot of it comes down on me, things I didn't do. Even in the second set I think it was pretty poor play."
Raonic lost his first-round match on grass last week an event in Halle, Germany and immediately applied for a wild-card entry into Eastbourne. He was installed as the top seed based upon his No. 15 ATP world ranking.
"I can't play much worse, so it's only going to get better," Raonic said. "I think I should be positive in that sense."
Dodig registered more aces (12) than his hard-hitting 22-year-old Canadian opponent, who had nine in the match that lasted just under 90 minutes.
Raonic has an 8-8 career record on grass but is 0-2 against Dodig, who beat him on Barcelona clay in 2011.
Dodig took control of the opening set by breaking Raonic's first serve. The 54th-ranked Dodig recorded a second break for a 5-2 lead when Raonic put a backhand into the net. A game later, the Dodig took the set with an overhead smash.
The two stayed on serve in the second set to force the tiebreaker. Raonic went ahead 2-0 before Dodig rallied to tie it 5-5.
Raonic saved one match point with an ace, then fired another to give himself a set point. However, it was Dodig who finally earned the upset win as Raonic's return went out.
"I was trying to get a little bit closer and I had my chance at the tiebreak," Raonic said. "But I don't think I should let situations where I let two double faults from my opponent pass by and not win a tiebreaker.
"That's pretty bad."
The good news for Raonic is he believes his problems on grass can be fixed.
"It's more me," he said. "I've got to figure out my thing.
"It's like I'm just not executing the things I need to execute. Obviously the surface doesn't make it easy. I think it's easier for me to figure out things on hard courts per se, but I think it's all on my shoulders."
Earlier, Marion Bartoli of France withdrew from the tournament with a viral infection, giving No. 2-seeded Li Na of China a walkover into the quarter-finals.
With files from The Associated Press