It was just before half time when Portland midfielder Kalif Alhassan scored to put the home side up by two on route to a 4-0 victory over the Reds at Jeld-Wen Field, snapping TFC's two-game unbeaten streak.
"It really got away from us. Before the second goal, everything was going to plan," said Nelsen. "Unfortunately it was a mistake from a young centre back (Gale Agbossoumonde) who was brilliant on the night.
"He was having such a great game, but he'll learn from that."
Agbossoumonde's error in the 83rd minute allowed Wallace to net Portland's second goal, turning what had been a close game into a rout as Rodney Wallace, Will Johnson and Diego Valeri all scored in the final ten minutes for Portland.
TFC captain Steven Caldwell agreed with Nelsen, saying the Timbers' second goal was the turning point.
"We were in the game and started to assert ourselves a little bit and had a bit of momentum," Caldwell said. "And then, of course, we gave away the second goal, which was a poor goal from us. So then we got a wee bit loose and a wee bit open and unfortunately we go down pretty heavy in the end."
The Reds travelled to Portland after consecutive 1-1 draws, but did so without the services of four players, who were called up for international duty with Canada.
Regular starters Doneil Henry, Ashton Morgan and Jonathan Osorio were among those missing, while midfielder Bobby Convey was injured at Friday's practice session in Portland and was unable to play.
Robert Earnshaw had Toronto's best first half chance, acrobatically attempting a half volley inside the Portland box after Richard Eckersley carried the ball into the attacking third. Earnshaw's shot was saved by former Reds goalkeeper Milos Kocic, who smothered the ball without as much effort as the skill of the shot suggested.
Later in the half, Earnshaw tried a bicycle kick that sailed just high of Kocic's goal.
Toronto nearly reached half time without allowing a goal, narrowly avoiding the opener when Alhassan's 32nd minute shot ricocheted off Joe Bendik's near post. But a 45th minute volley from Alhassan sent the visitors into the locker room with a slight deficit.
Despite needing to find a goal to salvage a draw, Toronto spent much of the second half on the back foot.
An Andrew Jean-Baptiste 51st minute goal was called back for offside and Bendik needed to punch clear a strong Wallace shot just four minutes later. On the hour, Portland's Diego Chara streaked through the Toronto defence but Bendik was bailed out as Chara pushed his open shot wide to the right.
Long balls from the back toward Earnshaw and Andrew Wiedeman yielded little, though Nelsen opted not to alter his tactical approach despite Portland's overwhelming possession and passing advantages. Wiedeman did get a half-chance in the 65th minute after a Portland defensive miscommunication, but even that break in luck ended without a goal as Kocic recovered just in time.
Over the final fifteen minutes, Toronto finally poured forward with chances coming nearly every minute.
Eckersley, Wiedeman and Earnshaw were responsible for the increase in opportunities but Portland's defence, which has allowed the fewest goals from open play in Major League Soccer, lived up to its record and kept the visiting Reds from stealing a late draw. A late Darel Russell header came closest to getting Toronto on the score sheet but it hit the top of the net.
Toronto's late push was snapped by Valeri after Agbossoumonde's miscue left Wallace clear on goal. Valeri found Wallace who slotted his shot past Bendik.
Johnson scored Portland's third goal when a series of passes gave the Timbers captain a wide open look in the 87th minute. Valeri poked in an injury time goal to seal the victory.
Following the game, Nelsen dismissed the club's turbulent week, including the firing of team president Kevin Payne, as having any effect on his team's performance.
Toronto leaves Portland in ninth place in the Eastern Conference with 22 points coming from 27 games.