Schwartzman, seeded 18 in Melbourne, lost in four sets against world no. 57 Tomas Berdych in round three.
Schwartzman broke serve to win the opening set 7-5.
Berdych of the Czech Republic hit back to level the match by winning the second set 6-3 and he went on to see out the match 7-6, 6-4 against the Argentina Davis Cup star, who is seven years younger.
Berdych's joy was shortlived, however, as he was beaten in straight sets by Rafa Nadal in the fourth round.