The 33-year-old Bryans were attempting to secure their place as the most decorated doubles team since the Open Era began in 1968. The brothers remain level on 11 major titles with the Australian duo of Mark Woodforde and Todd Woodbridge, also known by their nickname the Woodies.
"Obviously, it's disappointing," Bob Bryan said. "But you know, I thought we have had a great Australian swing, and we're playing, at least I'm playing a lot better than I did last year already. It bodes well for the rest of the year."
Paes and Stepanek are veteran doubles players but were teaming up for just the fourth time. Before partnering for a tuneup event at Sydney earlier this month, where they lost to the Bryan brothers, the Indian and Czech duo hadn't played together for nearly six years.
After Mike Bryan double-faulted on match point, Paes leaped into Stepanek's arms and the pair swung around at midcourt. They both then reached up to stands to give high-fives to Martina Navratilova, with whom Paes won the mixed doubles trophy at the Australian Open in 2003.
The Bryans have captured each major at least once, but they've been most dominant at Melbourne Park, where they've won three straight Australian titles and five overall. They hadn't lost here since the quarterfinals in 2008.
Bob Bryan has a special prize waiting for him at home. His wife was due to give birth to the couple's first child on Saturday and he's planning to catch a Sunday morning flight back home to Miami to try to be there in time.
"I have something to look forward to going home, so my mind is going to get off the match a lot quicker than it usually would after a final like this," he said.
For the 38-year-old Paes, the victory marks a career milestone. By winning the Australian Open, he completed a career doubles Grand Slam, adding to his three French Open titles, two U.S. Open titles and one Wimbledon title.
"It's many years of hard work," Paes said. "I put in many, many years. I have been in 25 plus years into the game of tennis, and it's given me so much. The reason I can still win Grand Slams is, one, I know how to pick great partners; and, two, I'm very passionate about my daily schedule.
"Every day I put myself on the line, and that's a lot of fun."
It was Stepanek's first major doubles title. The Czech player lost in his only other final at the 2002 U.S. Open.
Paes and Stepanek dominated the first-set tiebreak, taking advantage of rare misses by the brothers and a couple of deft volleys by Paes to capture six straight points.
The pair then broke the Bryans immediately in the second set on a Stepanek crosscourt volley winner to go up 2-0. The Bryans had a chance to break back at 2-4, but Paes saved it with another sharp volley.
Paes, a former No. 1 doubles player, has a shot to pick up another trophy at Melbourne Park, too. He's in the mixed doubles final with partner Elena Vesnina on Sunday, playing against Horia Tecau and Bethanie Mattek-Sands.
The Bryans will have another shot at the Grand Slam record at the French Open in a few months. Even though one of them is soon to be a father, they don't have plans to stop playing anytime soon.
"We both feel young," Bob Bryan said. "If we want to play this sport for another seven years, it's going to be there for us if we stay healthy.
"The singles game, as you see, is just incredibly physical. Guys, if they can get past 30, it's amazing. But doubles, 40, 40 seems to be the age now."