Kohlschreiber failed to create any break points and was forced to fend off six from the 100th-ranked Istomin. The Uzbek won in 1 hour, 41 minutes and next faces another German, Florian Mayer.
Kohlschreiber, who reached the final in 2013 and 2016, said: ''I have the feeling that I got worse and worse as the game went on. Of course it's very disappointing that I'm out. I'd have liked to have played another final here.''
The eighth-seeded Feliciano Lopez was 6-1 up against Viktor Troicki before their match was suspended due to rain.