He will now play another highly promising talent in his Saturday semi-final match against 23-year-old Daniil Medvedev.
The seventh-ranked Tsitsipas recovered from losing the opening three games in just seven minutes to shock the reigning champion 3-6, 7-5, 6-3.
He sealed the deal with a gleeful smash and held both arms aloft.
Tsitsipas has now defeated the top-ranked Serbian twice in their three matches — further proof that the 21-year-old is a serious contender at the top of men’s tennis.
After a dreadful start, he found his feet in the second set, winning on a tie break, then went 3-1 up in the decider when Djokovic planted his forehand wide on the third break point.
It was a double celebration for the young Greek, who has also confirmed his place in the prestigious season-ending ATP Finals.
He did so after fourth-ranked Medvedev tamed self-styled “wild horse” Fabio Fognini 6-3, 7-6 (7/4) to canter into the semi-finals. Fognini was vying for a place at the Finals.
Djokovic, 32, said that he is fully recovered from a shoulder injury.
He did not drop a set in winning the title in Tokyo and had carried that form into Shanghai — until he came across Tsitsipas.
Medvedev — another of the next generation — sent down 12 aces to help see off Fognini and said: “I don’t know what happened, my serve was crushing it.”
The Russian has a 12-0 record in quarter-finals this year and Djokovic this week described him as “very complete” player.
Roger Federer, the 20-time Grand Slam champion, faces young German Alexander Zverev later Friday in his quarter-final.
The other match is between Austria’s Dominic Thiem, who beat Tsitsipas to the China Open title on Sunday, and Italy’s Matteo Berrettini.
US Open champion Rafael Nadal is not in Shanghai because of a wrist injury.