Hewitt fell to the white-hot eighth seed 7-6 (7-4) 7-5 6-3 - Tipsarevic producing some amazing tennis from the middle of the second set to sink the 31-year-old Australian on Rod Laver Arena.
After losing a tight first set in a tie-break, Hewitt raced to a 3-0 second set lead with two service breaks.
But the Serbian cranked up several gears from then on.
With some punishing winners and after solidifying his service game, Tipsarevic won seven of the next nine games - breaking Hewitt's serve to secure the second set.
Tipsarevic then raced to an early 3-0 lead in the third.
Hewitt's trademark fight then came to the fore, breaking back with the slightest of opportunities to put the set on serve.
But Tipsarevic broke back again mid-set and served out the match in just over three hours.
In his record 17th successive Australian Open, Hewitt's defeat means he has only ever once got beyond the fourth round at Melbourne Park - when he made and lost the final in 2005.