The Spanish 14th seed, the losing finalist last year, was on the cusp of making the quarter-finals once more at 5-3, 40-15 in the third set.
But was unable to get across the finish line as Osaka reeled off four straight games to complete an improbable 4-6, 6-4, 7-5 comeback.
“I mean, really the difference I feel like it was one point,” she said.
“We had a lot of great points. I felt, of course, a little bit disappointing being 5-3 in the third set up, having match points
“It’s never a good feeling losing a match that you feel you could have changed in one second. But I left the court with a good feeling, very good feeling of this tournament in general.”
Two-time Grand Slam winner Muguruza had been in good form ahead of meeting Osaka and emerging as a serious championship contender.
She reached the final of the warm-up Yarra Valley Classic and had not dropped at a set in this year’s Open before meeting Osaka .
“When you’re younger, you’re disappointed,” said Muguruza, who lost in the final last year to Sofia Kenin.
“(But) I feel like it’s just little details here and there that makes a difference with the top players. I think I’m on the right path.