The reigning world and European champion has exited the competition at the group stage after being stunned by its South American opponent.
Defending champion Spain crashed out of the FIFA World Cup in embarrassing fashion at the group stage after a 2-0 defeat to Chile.
On a night when the pre-match build-up was dominated by trouble behind the scenes at the Maracana, as Chile fans stormed the stadium's media center bringing down temporary walls, on the pitch there was similar chaos for La Roja as their era of dominance on the international stage was brought to an abrupt end.
After a 5-1 hammering against the Netherlands in their opening Group B clash, midfielder Xabi Alonso had insisted that reports of his team's demise were "exaggerated".
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He was wrong, and Spain is now out, after a game in which Vicente del Bosque's side looked weary and one-dimensional against a well-organized South American opponent.
Having fallen behind to Eduardo Vargas' well-taken 20th-minute finish and been pushed to the brink by a second from Charles Aranguiz - helped by some bizarre goalkeeping from Iker Casillas - rarely did a comeback ever look likely.
Del Bosque dropped Barcelona duo Gerard Pique and Xavi following the humiliation against the Dutch, but the change in personnel made little difference as the team capitulated once again.
Busquets should probably have put Spain back into the contest early in the second half, but he inexplicably missed the target from close range, and from then on Del Bosque's side lacked any real invention.
Victory for Chile means that its final group game against the Netherlands will determine who finishes top with both now through to the last 16, while Spain faces Australia with nothing left to play for before heading home in despair.
Chile looked far brighter in the early exchanges and went close twice inside the first three minutes - Vargas seeing a poked effort deflected agonizingly wide, before Gonzalo Jara headed just off target.
Despite that, Spain gradually appeared to grow into the contest, only to find itself behind in the 20th minute.
After latching on to Alexis Sanchez's through ball, Aranguiz squared to Vargas, who cleverly sidestepped Casillas before prodding the ball into an empty net.
Spain almost restored parity eight minutes later, only for Diego Costa to find the side netting after pouncing on David Silva's headed pass.
Chile soon made the most of its opponent's incompetence again to forge a two-goal lead after 43 minutes.
Aranguiz was at the center of things once more, but it was Casillas who was the real architect of Spain's downfall. He bizarrely opted to punch a Sanchez free kick back out into a crowded area when the ball could easily have been caught.
With the Spanish defensive wall slow to react, Aranguiz controlled with a deft touch before prodding home past the stranded goalkeeper to put Spain on the brink.
Spain started the second period with renewed determination and almost pulled a goal back in the 52nd minute, only for Busquets to skew a shot wide from close range after reaching Costa's overhead kick.
Del Bosque's men exerted more control over possession than in the first half, but they still struggled to get Costa into dangerous positions, with the Atletico Madrid forward soon substituted to a chorus of jeers.
Chile should have put the match beyond all doubt in the 68th minute when Mauricio Isla met Eugenio Mena's low cross at the back post, but the Juventus man sliced over, handing Spain a lifeline.
With Fernando Torres on in place of Costa and Santi Cazorla also thrown into the fray, the Spaniards desperately poured men forward in the closing stages and a long-range Andres Iniesta effort forced Claudio Bravo into an acrobatic save.
But it was not enough, as the South Americans held on to their clean sheet and booked their place in the second round.
Spain, meanwhile, was left to reflect on a world title defense that was ended before it had really even begun - with Del Bosque and his men now assessing just where they go from here.