Juan Martin del Potro denied Federer his hometown Swiss Indoors title for the second straight year, winning the final 7-6 (3), 2-6, 6-4 on Sunday.
Federer trailed throughout his first final in more than four months, though showed no sign of the back problems which have hampered him during the most difficult season of his career.
"I am a winner, I don't take much confidence from losing matches," Federer said. "I am happy about the level of my play, it's getting better, but it's not in losing where I get much confidence."
Federer had hoped that the raucous crowd support in Basel — where he is a five-time champion — could help revive his form, but he has still won just one title in the past 14 months.
Del Potro beat the player he described as "a big inspiration" for the third straight time, including the 2012 Basel final.
"I think Roger is playing well," the top-seeded Argentine said. "For me, he has the perfect game. He played much better when he has the chance to play the top guys."
Still, with this loss against fifth-ranked del Potro, Federer has only one victory against a top-10 opponent in 2013. That was back in January, against then-No. 8 Jo-Wilfried Tsonga in the Australian Open quarterfinals, before a series of shocking defeats against opponents outside the top 50.
Federer can take one positive from his Swiss Indoors run, as it all but secured a place in the eight-man lineup at the ATP World Tour Finals in London starting a week from Monday.
The sixth-ranked Swiss would confirm his London place at the Paris Masters in midweek if he wins a second-round match against Kevin Anderson of South Africa or Mikhail Youzhny of Russia. Even with a loss, he can only be kept out by an unlikely sequence of victories for several rivals in the points race.
"Looking forward to Paris and London, he is going to be a really difficult opponent," del Potro said. "Then he has the time for recovery to be ready for next season."
Del Potro earned his 17th career title and fourth this season. He also won at Rotterdam in February, Washington D.C. in August and Tokyo this month, all on his favoured hard-court surface.
The 32-year-old Federer still holds a 13-5 career record against del Potro, but last beat him in the London Olympics semifinals at Wimbledon.
On Sunday, Federer lost the first set despite playing some of his best tennis this week.
After del Potro forced a 5-3 lead with the first break, Federer responded with four straight points on his opponent's serve and shouted in triumph.
Facing two set points in the next game, Federer hit an ace and won a long, slugging rally that brought a yell of delight from the sold-out crowd of 9,200.
Still, del Potro dominated the tiebreaker helped by two net cords in his favour, and clinched the set when Federer sent a forehand wide.
Federer levelled the match with much less drama in the second set, after breaking to take a 2-0 lead with a forehand crosscourt winner.
He broke again to clinch the set, set up by a pinpoint forehand winner, and got a standing ovation as he headed back to his seat.
"Roger started to play much better. In the finals, you can't relax in any moment," del Potro said.
Federer quickly wasted the advantage of serving first in the decider, despite saving a break point with a leaping backhand overhead winner after del Potro's deft lob. He double-faulted to give del Potro a second opportunity and then hit a forehand long.
"I did hand the break over to him a little bit too easily in the third set but I did well today," Federer said.
Serving for the match, del Potro hit an ace to set up three match points, and converted the second with strong ground strokes to move Federer around the court.
Del Potro improved to 48-13 this season and earned 348,000 euros ($480,000) for the victory.
Federer, now 40-14 in 2013, was playing his first final since winning the low-key grass-court event in June at Halle, Germany.
He remains tied with John McEnroe on 77 career singles titles, third most during the 45-year Open era. Jimmy Connors has 109 titles and Ivan Lendl has 94.
"He is also a better person than he is a tennis player," del Potro said of Federer. "I am very proud to have a good relationship with him."